How will a favorable volume variance affect net income under each of the following methods?
A)reduce no effect
B)reduce increase
C)increase no effect
D)increase reduce

Question

How will a favorable volume variance affect net income under each of the following methods? 
A)reduce no effect 
B)reduce increase 
C)increase no effect 
D)increase reduce

Quizplus · Accepted Answer

A favorable volume variance means that more units were sold than expected, which will increase revenue. Under absorption costing, this will also increase net income because fixed manufacturing overhead costs are allocated among a larger number of units. Under variable costing, net income will not be affected because fixed manufacturing overhead costs are not allocated to units. Therefore, the best choice is C - an increase in revenue will increase net income under absorption costing, but will not affect net income under variable costing.

How Will a Favorable Volume Variance Affect Net Income Under