Favorable volume variances may be harmful when
A) machine repairs cause work stoppages
B) supervisors fail to maintain an even flow of work
C) production in excess of normal capacity cannot be sold
D) all of the answers are correct

Question

Quizplus · Accepted Answer

When production exceeds normal capacity, it may result in excess inventory, which incurs holding costs and may ultimately lead to obsolete inventory. The presence of favorable volume variances suggests that production levels are higher than anticipated, and if this excess production cannot be sold, it may be harmful to the business. A and B may also be relevant factors, but they are not directly related to the issue of favorable volume variances.

Favorable Volume Variances May Be Harmful When