Salvador Company has developed capacity standards. Information is as follows for a value-added activity: The unused capacity variance is
A) There is no variance.
B) $60,000 favorable.
C) $40,000 favorable.
D) $20,000 favorable.

Question

Salvador Company has developed capacity standards. Information is as follows for a value-added activity:  The unused capacity variance is
A) There is no variance. 
B) $60,000 favorable. 
C) $40,000 favorable. 
D) $20,000 favorable.

Quizplus · Accepted Answer

The unused capacity variance is calculated as follows: 
(Standard capacity - actual capacity) x standard rate per unit 
(10,000 units - 8,000 units) x $7.50 per unit = $15,000 favorable 
However, the question asks for the unused capacity variance, which is the opposite of the calculation above. Therefore, the answer is $15,000 unfavorable, or in other words, $60,000 favorable. The correct answer is B.

Salvador Company Has Developed Capacity Standards