Favorable volume variances are never harmful, since achieving them encourages managers to run the factory above normal capacity.

Question

Quizplus · Accepted Answer

This statement is false. While favorable volume variances indicate that the factory is operating above normal capacity, consistently doing so can lead to increased wear and tear on equipment, higher maintenance costs, and a higher likelihood of accidents or incidents. Additionally, overproduction can lead to inventory buildup and storage costs, which can ultimately hurt the company's profitability. Therefore, it is important for managers to balance production levels with operational efficiency and cost-effectiveness.

Favorable Volume Variances Are Never Harmful, Since Achieving Them Encourages