Question

In a standard cost system, an unfavorable production-volume variance would result if:

A. There is an unfavorable labor efficiency variance.
B. There is an unfavorable labor rate variance.
C. Actual production is less than the "denominator volume" (that is, the volume level used to establish the fixed overhead application rate).
D. There is an unfavorable manufacturing overhead spending variance.
E. Actual fixed overhead costs are greater than budgeted fixed overhead costs.

Answer 1

An unfavorable production-volume variance in a standard cost system is caused by actual production being less than the denominator volume, leading to fixed overhead costs spread over fewer units.

Step-by-step explanation:

In a standard cost system, an unfavorable production-volume variance occurs when the actual production is less than the "denominator volume", which is the volume level used to establish the fixed overhead application rate. This is because, with fewer units produced, the fixed overhead costs are spread over a smaller number of units, raising the per-unit cost.

Since variable costs, such as labor and raw materials, increase or decrease with output, they are directly related to the actual number of goods or services produced. Therefore, if the actual production is less, the fixed costs allocated to each unit becomes greater, leading to an unfavorable variance.