Froelech Company has developed capacity standards.Information is as follows: The volume variance is
A) $20,000 unfavorable.
B) $30,000 unfavorable.
C) $50,000 unfavorable.
D) there is no variance.

Question

Froelech Company has developed capacity standards.Information is as follows:  The volume variance is
A) $20,000 unfavorable. 
B) $30,000 unfavorable. 
C) $50,000 unfavorable. 
D) there is no variance.

Quizplus · Accepted Answer

The capacity standard is 200,000 units (100,000 units x 2 shifts). The actual production is 150,000 units. Therefore, the volume variance is (200,000 - 150,000) x $0.50 = $25,000 unfavorable. However, the company also incurred $25,000 favorable efficiency variance, which means that the actual cost of producing 150,000 units is $25,000 less than the expected cost. Therefore, the net variance is $25,000 - $30,000 = $50,000 unfavorable.

Froelech Company Has Developed Capacity Standards