Providence Company’s practical capacity is 80% of its theoretical capacity. The company
writes off any variances to the cost of goods sold at the end... Accounting MCQs | Accounting MCQs

Providence Company’s practical capacity is 80% of its theoretical capacity. The company
writes off any variances to the cost of goods sold at the end of the year. If Providence uses
theoretical capacity to calculate its budgeted fixed manufacturing cost, as compared with
using practical capacity, the company’s

Budgeted fixed overhead will be higher.Selling price will be lower.Income will be higher.Assets will be lower.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct.
Using practical capacity results in fixed overhead being higher per unit
because the total costs are allocated over fewer units. Thus, theoretical
capacity will result in a lower inventory value per unit