Azzurra Corporation manufactures computer chips used in aircraft and automobiles.Manufacturing overhead at Azzurra is applied to production on the basis of standard machine-hours.Which overhead variance(s)at Azzurra would be affected in an unfavorable manner if fire and theft insurance rates increase by 25% unexpectedly during the period?
A) variable overhead rate variance
B) variable overhead efficiency variance
C) fixed manufacturing overhead budget variance
D) fixed manufacturing overhead volume variance

Question

Quizplus · Accepted Answer

An increase in fire and theft insurance rates by 25% unexpectedly during the period would lead to an increase in the fixed costs associated with manufacturing overhead. Since these costs are fixed and not variable with production volume or efficiency, the fixed manufacturing overhead budget variance would be unfavorably affected. This variance measures the difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs. An increase in insurance rates would increase actual fixed overhead costs, leading to an unfavorable budget variance.

Azzurra Corporation Manufactures Computer Chips Used in Aircraft and Automobiles