The Santos Corporation Made an Error When Selecting a Denominator

question 75

Multiple Choice

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.

---

Definitions:

Amortized Cost Model

An accounting technique used to gradually write down the cost of an intangible asset over its useful life.

Fair Value

The price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Profit Or Loss Model

A financial model that calculates the difference between a company’s revenues and its expenses, helping understand its profitability over a certain period.