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.

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Definitions:

Lower-of-cost-or-market

An accounting principle that values inventory at the lower of its historical cost or current market price.

Average Cost

A method of inventory valuation that calculates the cost of goods sold and ending inventory based on the weighted average of all units purchased.

Costing Method

a technique or methodology used to determine the cost associated with a production process or project.