Question

Sunshield is a company that manufactures bottles of sunscreen. Below is basic information related to Sunshield's 2019 operations, in units: Theoretical capacity 275,000 Practical capacity 265,000 Normal capacity 260,000 Production 250,000 Sales 270,000 Assume beginning inventory was 20,000 bottles. Consider Sunshield's possible choices for capacity, used to calculate the budgeted fixed manufacturing overhead rate. Complete the following statements: _________ would result in the largest production volume variance; _________ would result in a favorable production volume variance.

a. theoretical capacity; none of the capacity choices
b. normal capacity; practical and normal capacity
c. normal capacity; theoretical capacity
d. theoretical capacity; all of the capacity choices

Answer 1

Complete the following statements: THEORETICAL CAPACITY would result in the largest production volume variance; NONE OF THE CAPACITY CHOICES would result in a favorable production volume variance.

a. theoretical capacity; none of the capacity choices

Step-by-step explanation:

production volume variance = (actual unit quantity manufactured - budgeted unit quantity manufactured) x budgeted cost per unit

(actual production - theoretical capacity) x budgeted cost per unit = (250,000 - 275,000) x budgeted cost = 25,000 x budgeted cost

None of the capacity choices would result in a favorable variance because actual production was lower than all of them.

actual production 250,000 < theoretical 275,000

actual production 250,000 < practical 265,000

actual production 250,000 < normal 260,000