Sheen Industries has provided the following data for the previous year: Units sold during the previous year 5,000 units Selling price per unit $20 Direct materials per unit $4 Direct manufacturing labor per unit $4 Variable manufacturing overhead per unit $2 Fixed manufacturing costs $16,000 Budgeted production at the beginning of the year 5,000 units Number of units in opening inventory 0 unit Number of units in ending inventory 1,000 units

The CEO of the company is of the opinion that the budgeted fixed manufacturing cost should be allocated on the basis of master-budget capacity utilization. However, the finance controller is of the opinion that budgeted fixed manufacturing cost should be allocated on the basis of practical capacity of 8,000 units.

Which of the following statements is most likely to be true for Sheen Industries?

ANSWER

Production-volume variance will be $4,000 favorable in case practical capacity is used as denominator base.

Production-volume variance will be $4,000 unfavorable in case master-budget capacity utilization is used as denominator base.

Production-volume variance will be $3,200 favorable in case practical capacity is used as denominator base.

Production-volume variance will be $3,200 favorable in case master-budget capacity utilization is used as denominator base.

I DON'T KNOW YET