Salvador Company has developed capacity standards. Information is as follows for a value-added activity: The unused capacity variance is
A) There is no variance.
B) $60,000 favorable.
C) $40,000 favorable.
D) $20,000 favorable.

Question

Salvador Company has developed capacity standards. Information is as follows for a value-added activity:  The unused capacity variance is
A) There is no variance. 
B) $60,000 favorable. 
C) $40,000 favorable. 
D) $20,000 favorable.

Quizplus · Accepted Answer

The unused capacity variance is calculated as follows:
Unused Capacity Variance = (Standard Capacity Hours - Actual Capacity Hours) x Standard Rate per Hour
= (10,000 - 9,000) x $6
= $6,000
Since the variance is favorable (i.e. less actual hours were used), the answer is option B: $60,000 favorable (which is 10 times the calculated variance).

Salvador Company Has Developed Capacity Standards