Rameriz Company erred in selecting a denominator activity and chose a much higher 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)unfavorable overhead volume variance.
D)unfavorable fixed manufacturing overhead budget variance.

Question

Quizplus · Accepted Answer

Selecting a higher denominator activity would result in a lower overhead rate, leading to an unfavorable overhead volume variance. This variance measures the impact of the difference between actual and expected activity levels on fixed overhead costs. A higher denominator activity would result in a larger overhead allocation, which would not be justified by the actual level of activity. Therefore, the variance would be unfavorable, and the actual fixed overhead costs would be higher than the flexible budget.

Rameriz Company Erred in Selecting a Denominator Activity and Chose