Answer the following questions using the information below:
Gus Corporation manufactured 10,000 golf bags during April. The fixed overhead cost-allocation rate is $40.00 per machine-hour. The following fixed overhead data pertain to March:

-An unfavorable production-volume variance of $20,000 indicates that the company has:
A)unused fixed manufacturing overhead capacity
B)overallocated $20,000 of fixed manufacturing overhead costs
C)$20,000 more capacity than needed
D)an economic loss of $20,000 from selling fewer products than planned

Question

Answer the following questions using the information below:
Gus Corporation manufactured 10,000 golf bags during April. The fixed overhead cost-allocation rate is $40.00 per machine-hour. The following fixed overhead data pertain to March:
 
-An unfavorable production-volume variance of $20,000 indicates that the company has:
A)unused fixed manufacturing overhead capacity 
B)overallocated $20,000 of fixed manufacturing overhead costs 
C)$20,000 more capacity than needed 
D)an economic loss of $20,000 from selling fewer products than planned

Quizplus · Accepted Answer

An unfavorable production-volume variance means that fewer products were manufactured than planned. However, since the fixed overhead cost-allocation rate is a machine-hour rate, it indicates that the company has extra capacity that was not utilized. Therefore, the company has unused fixed manufacturing overhead capacity.

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