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:
A)is not a good measure of a lost production opportunity
B)measures the total economic gain or loss due to unused capacity
C)measures the amount of extra fixed costs planned for but not used
D)takes into account the effect of additional revenues due to maintaining higher prices

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:
A)is not a good measure of a lost production opportunity 
B)measures the total economic gain or loss due to unused capacity 
C)measures the amount of extra fixed costs planned for but not used 
D)takes into account the effect of additional revenues due to maintaining higher prices

Quizplus · Accepted Answer

An unfavorable production-volume variance occurs when the actual production volume is less than the budgeted or planned production volume. This means that the fixed overhead costs allocated to the actual production volume are spread over fewer units, resulting in higher fixed overhead costs per unit. Therefore, the amount of fixed overhead costs planned for but not used is higher, leading to an unfavorable production-volume variance. Option A is incorrect because a lost production opportunity would result in a different variance called a sales volume variance. Option B is incorrect because the fixed overhead cost-allocation rate does not measure the economic gain or loss due to unused capacity, but rather the amount of fixed overhead costs allocated to each unit manufactured. Option D is incorrect because the production-volume variance only takes into account the effect of fixed overhead costs and not the effect of additional revenues due to maintaining higher prices.

Answer the Following Questions Using the Information Below