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Good day Sir
why is it that buying a new machine to replace an unreliable one leads to a favorable overheard capacity variance, usually a favorable fixed capacity variance occurs when Actual hours @ standard rate are more than Budgeted hours @ standard rate. l was thinking buying a new machine will reduce the number of actual hours worked
kindly assist
A favourable capacity variance occurs when they should be able to produce more units than they were budgeting on producing. Usually it is because they have more labour hours available than they budgeted on having.
However the same can happen if they get a better machine – it is going to enable them to produce more units than the current one (because the current one is unreliable) and therefore lead to a favourable capacity variance.
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