Which variance arises when actual production volume differs from the budgeted activity?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $25.99Unlock all

Prepare for the Accounting SmartBook Test. Practice with tailored questions and helpful hints. Analyze comprehensive explanations for a deep understanding. Ace your exam with confidence!

Multiple Choice

Which variance arises when actual production volume differs from the budgeted activity?

Explanation:
Volume variance measures how much the fixed overhead allocated to production changes when actual production differs from the budgeted activity. Since fixed overhead is spread over the planned level of output, producing more than budgeted means more fixed overhead is absorbed into the cost of goods (generally favorable, because the overhead is allocated across more units). Producing less than budgeted means less overhead is absorbed (unfavorable). This variance is tied to the level of activity, not the per-unit cost or efficiency, and it differs from spending or efficiency variances.

Volume variance measures how much the fixed overhead allocated to production changes when actual production differs from the budgeted activity. Since fixed overhead is spread over the planned level of output, producing more than budgeted means more fixed overhead is absorbed into the cost of goods (generally favorable, because the overhead is allocated across more units). Producing less than budgeted means less overhead is absorbed (unfavorable). This variance is tied to the level of activity, not the per-unit cost or efficiency, and it differs from spending or efficiency variances.

More Multiple Choice Questions
Subscribe

Get the latest from Passetra

You can unsubscribe at any time. Read our privacy policy