The Santos Corporation made an error when selecting a denominator level of activity and chose a much lower level than was realistic. This error would most likely result in a large:
A)favorable variable overhead efficiency variance.
B)favorable fixed manufacturing overhead budget variance.
C)favorable fixed manufacturing overhead volume variance.
D)unfavorable fixed manufacturing overhead budget variance.

Question

Quizplus · Accepted Answer

A lower denominator level of activity would result in a higher predetermined overhead rate, leading to a favorable fixed manufacturing overhead volume variance when actual production exceeds the underestimated level.

The Santos Corporation Made an Error When Selecting a Denominator