When does an unfavourable production-volume variance occur?
A)production exceeds the denominator level
B)production exceeds unit sales
C)the denominator level exceeds production
D)unit sales exceed production

Question

Quizplus · Accepted Answer

An unfavourable production-volume variance occurs when the denominator level exceeds production, meaning that there is unused capacity that could have been used to produce more units and increase sales. This results in a lower contribution margin, leading to a negative variance. Option A is incorrect as it describes a favourable production-volume variance, where production is higher than the denominator level. Option B is incorrect as it describes a situation where production exceeds unit sales, which is not necessarily indicative of an unfavourable variance. Option D is also incorrect as it describes a situation where unit sales exceed production, which is not necessarily indicative of an unfavourable variance.

When Does an Unfavourable Production-Volume Variance Occur