The higher the denominator level,the ________.
A) higher the budgeted fixed manufacturing cost rate
B) lower the amount of fixed manufacturing costs allocated to each unit produced
C) higher the favorable production-volume variance
D) more likely actual output will exceed the denominator level

Question

Quizplus · Accepted Answer

The denominator level represents the activity level used to allocate fixed manufacturing costs. As the denominator level goes up, the amount of fixed costs allocated to each unit produced goes down, because the costs are spread over a larger number of units. Therefore, B is the correct answer. A is incorrect because a higher denominator level would actually result in a lower budgeted fixed manufacturing cost rate, since fixed costs would be spread over more units. C is incorrect because the production-volume variance is unrelated to the denominator level. D is incorrect because a higher denominator level would actually make it less likely that actual output will exceed the denominator level, since the denominator level represents the level of activity that was used to allocate fixed costs.

The Higher the Denominator Level,the ________