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

Question

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The budgeted fixed production overhead cost rate is calculated based on a certain capacity level. If this capacity level is higher than the actual production, then the fixed overhead cost allocated per unit will be higher than necessary. As a result, the actual fixed overhead cost incurred will be lower than the allocated amount, leading to an unfavorable production-volume variance.

If the Capacity Level Chosen to Calculate the Budgeted Fixed