The economic impact of the inability to reach a target denominator level of activity would best be measured by
A)the amount of the volume variance.
B)the contribution margin lost by failing to meet the target denominator level of activity.
C)the amount of the fixed overhead budget variance.
D)the amount of the variable overhead efficiency variance.

Question

Quizplus · Accepted Answer

The contribution margin lost by failing to meet the target denominator level of activity represents the revenue that could have been generated if the target level had been achieved. This is a measure of the economic impact of the inability to reach the target level. The volume variance (A) measures the overall deviation from the budgeted level of activity, but does not specifically capture the economic impact. The fixed overhead budget variance (C) and variable overhead efficiency variance (D) are focused on cost variances rather than revenue and do not capture the overall economic impact.

The Economic Impact of the Inability to Reach a Target