Final answer:
A greater actual level of activity than planned can result in favorable and unfavorable activity variances for variable expenses, depending on productivity and efficiency levels. Favorable variances indicate better-than-expected performance, while unfavorable variances suggest higher costs.
Step-by-step explanation:
When the actual level of activity is greater than the planned level of activity, one might encounter a combination of favorable and unfavorable activity variances for variable expenses. Variable expenses are expected to increase with higher levels of activity because they are costs that vary with the output. However, if the increased activity results in higher productivity and efficiency, the average variable cost per unit might decrease, creating a favorable variance. Conversely, if the level of productivity does not increase at the same rate as activity, or if inefficiencies occur, the average variable cost per unit could increase, leading to unfavorable variances.
A favorable activity variance indicates that a company is performing better than expected in terms of costs, whereas an unfavorable variance suggests higher than expected costs. By considering these variances, management can identify areas of efficiency or inefficiency, adjust their planning and control processes, and strive to optimize their operations for better financial performance.