If the capacity level chosen to calculate the budgeted fixed overhead cost rate is more than the actual production, an unfavorable production-volume variance will result.

Question

Quizplus · Accepted Answer

The budgeted fixed overhead cost rate is calculated based on the anticipated level of production capacity for the period. If the actual production level is lower than the capacity level used to calculate the fixed overhead cost rate, it will result in an unfavorable production-volume variance. This is because the fixed costs will be spread over a lower level of production, leading to a higher cost per unit of production.

If the Capacity Level Chosen to Calculate the Budgeted Fixed