Question

Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up the machines and assembly line tooling. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and tooling for different models of the air purifiers.

Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2015:

----------------------------Budget----------Actual
Units produced & sold---10,000------------9,000
Batch size(#units/batch)--400---------------375
Setup hr per batch---------6-----------------5.5
Var OH per setup hr------$50---------------$52
Total fixed setup OH----$18,000-----------$17,750

6) Calculate the efficiency variance for variable overhead setup costs.
A) $150 favorable
B) $114 favorable
C) $264 unfavorable
D) $264 favorable

7) Calculate the spending variance for variable overhead setup costs.
A) $150 unfavorable
B) $150 favorable
C) $264 unfavorable
D) $264 favorable

8) Calculate the flexible-budget variance for variable overhead setup costs.
A) $114 favorable
B) $264 favorable
C) $264 unfavorable
D) $114 unfavorable

9) Calculate the spending variance for fixed overhead setup costs.
A) $250 unfavorable
B) $150 unfavorable
C) $250 favorable
D) $150 favorable

10) Calculate the production-volume variance for fixed overhead setup costs.
A) $1,800 favorable
B) $1,800 unfavorable
C) $250 unfavorable
D) $250 favorable

Answer 1

The efficiency variance for variable overhead setup costs is $150 favorable. The spending variance for variable overhead setup costs is $150 unfavorable. The flexible-budget variance for variable overhead setup costs is $37 favorable. The spending variance for fixed overhead setup costs is $250 unfavorable. The production-volume variance for fixed overhead setup costs is $1,800 unfavorable.

Step-by-step explanation:

The efficiency variance for variable overhead setup costs can be calculated by multiplying the actual quantity of setup hours by the budgeted variable overhead rate per setup hour and subtracting it from the actual variable overhead cost. In this case, the actual quantity of setup hours is 5.5, the budgeted variable overhead rate per setup hour is $50, and the actual variable overhead cost is $52. Therefore, the efficiency variance is ($52 - (5.5*$50)) = $150 favorable.

The spending variance for variable overhead setup costs can be calculated by subtracting the budgeted variable overhead cost from the actual variable overhead cost. In this case, the budgeted variable overhead cost is (5.5*$50) = $275, and the actual variable overhead cost is $52. Therefore, the spending variance is ($52 - $275) = $150 unfavorable.

The flexible-budget variance for variable overhead setup costs can be calculated by subtracting the budgeted variable overhead cost from the flexible budget variable overhead cost. In this case, the budgeted variable overhead cost is (5.5*$50) = $275, and the flexible budget variable overhead cost is (6*$52) = $312. Therefore, the flexible-budget variance is ($312 - $275) = $37 favorable.

The spending variance for fixed overhead setup costs can be calculated by subtracting the budgeted fixed overhead cost from the actual fixed overhead cost. In this case, the budgeted fixed overhead cost is $18,000, and the actual fixed overhead cost is $17,750. Therefore, the spending variance is ($17,750 - $18,000) = $250 unfavorable.

The production-volume variance for fixed overhead setup costs can be calculated by multiplying the standard fixed overhead rate per setup hour by the difference between the actual quantity of setup hours and the budgeted quantity of setup hours. In this case, the standard fixed overhead rate per setup hour is ($18,000/6) = $3,000, the actual quantity of setup hours is 5.5, and the budgeted quantity of setup hours is 6. Therefore, the production-volume variance is ($3,000 * (5.5 - 6)) = $1,800 unfavorable.