A manufacturing company has an unfavorable volume variance. Which statement is true?

• A. Actual sales revenue exceeded budgeted sales revenue.
• B. The company sold more units than it produced.
• C. Actual production was less than the expected (budgeted) production level.
• D. Actual production was greater than the expected (budgeted) production level.

Answer: (C)

Verified step by step guidance

1. Understand the concept of volume variance: Volume variance occurs when there is a difference between the actual production level and the budgeted production level. It is considered unfavorable when actual production is less than the budgeted production level, as this typically leads to higher per-unit costs due to fixed costs being spread over fewer units.
2. Analyze the options provided: The problem asks which statement is true in the context of an unfavorable volume variance. Carefully read each option and determine whether it aligns with the definition of unfavorable volume variance.
3. Option 1: 'Actual sales revenue exceeded budgeted sales revenue' - This statement is unrelated to production levels and focuses on sales revenue, which does not directly impact volume variance. Eliminate this option.
4. Option 2: 'The company sold more units than it produced' - This statement refers to inventory levels and sales, not production levels. While it may lead to inventory depletion, it does not directly explain an unfavorable volume variance. Eliminate this option.
5. Option 3: 'Actual production was less than the expected (budgeted) production level' - This statement aligns with the definition of unfavorable volume variance, as lower production than budgeted results in higher per-unit costs. This is the correct answer. Option 4, 'Actual production was greater than the expected (budgeted) production level,' would result in a favorable variance, not an unfavorable one.