Mostly Miniatures Has Just Implemented a New Cost Accounting System

question 56

Essay

Mostly Miniatures has just implemented a new cost accounting system that provides two variances for fixed manufacturing overhead.While the company's managers are familiar with the concept of static-budget variance, they are unclear as to how to interpret the production-volume overhead variances.Currently the company has a production capacity of 54,000 miniatures a month although it generally produces only 46,000 cases.However, in any given month the actual production is probably something other than 46,000.Required:
a.Does the production-volume overhead variance measure the difference between the 54,000 and 46,000, or the difference between the 46,000 and the actual monthly production? Explain.
b.What advice can you provide the managers that will help them interpret the production-volume overhead variances?

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