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) there are insufficient sales orders to keep the factory operating at normal capacity.

Question

Quizplus · Accepted Answer

Favorable volume variances occur when actual production exceeds the budgeted amount. However, if this excess production cannot be sold, it will result in excess inventory, storage costs, and potential write-offs. Therefore, unfavorable volume variances may be preferable in situations where excess production cannot be sold. Machine repairs causing work stoppages (A), supervisors failing to maintain an even flow of work (B), and insufficient sales orders (D) are not directly related to volume variances.

Favorable Volume Variances May Be Harmful When