When machine-hours are used as a cost allocation base, the item MOST likely to contribute to a favourable production-volume variance is
A)an increase in the selling price of the product.
B)the purchase of a new manufacturing machine costing considerably less than expected.
C)a decline in the cost of energy.
D)strengthened demand for the product.
E)a competitor lowering the price of a similar product.

Question

Quizplus · Accepted Answer

When machine-hours are used as a cost allocation base, a favourable production-volume variance occurs when there is an increase in the number of machine-hours used compared to the budgeted number of machine-hours. This could happen due to strengthened demand for the product, resulting in higher production levels and more machine usage, which would contribute to a favourable production-volume variance. None of the other options have a direct impact on the number of machine-hours used.

When Machine-Hours Are Used as a Cost Allocation Base, the Item