Question

Munoz, Inc., produces a special line of plastic toy racing cars. Munoz, Inc., produces the cars in batches. To manufacture a batch of the cars, Munoz, Inc., must set up the machines and molds. 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 molds for different styles of car.

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:

Actual Static-budget
Amounts Amounts
Units produced and sold 15,000 11,250
Batch size (number of units per batch) 250 225
Setup-hours per batch 5 5.25
Variable overhead cost per setup-hour $40 $38
Total fixed setup overhead costs $12,000 $9,975

1) Calculate the efficiency variance for variable overhead setup costs.
A) $1,900 unfavorable
B) $600 unfavorable
C) $1,900 favorable
D) $600 favorable

2) Calculate the spending variance for variable overhead setup costs.
A) $1,900 unfavorable
B) $1,900 favorable
C) $600 unfavorable
D) $600 favorable

3) Calculate the flexible-budget variance for variable overhead setup costs.
A) $600 favorable
B) $1,300 favorable
C) $600 unfavorable
D) $1,300 unfavorable

4) Calculate the spending variance for fixed setup overhead costs.
A) $3,200 unfavorable
B) $2,025 unfavorable
C) $3,600 unfavorable
D) $2,025 favorable

5) Calculate the production-volume variance for fixed overhead setup costs.
A) $3,325 unfavorable
B) $400 unfavorable
C) $3,325 favorable
D) $400 favorable

Answer 1

The efficiency variance for variable overhead setup costs is $60 unfavorable. The spending variance for variable overhead setup costs is $10 unfavorable. The flexible-budget variance for variable overhead setup costs is $19 unfavorable. The spending variance for fixed setup overhead costs is $2,025 unfavorable. The production-volume variance for fixed overhead setup costs is $14,250 unfavorable.

Step-by-step explanation:

To calculate the efficiency variance for variable overhead setup costs, we need to compare the actual setup-hours per batch with the standard setup-hours per batch and multiply the difference by the standard variable overhead cost per setup-hour. In this case, the actual setup-hours per batch is 5 and the standard setup-hours per batch is 5.25, so the efficiency variance is ($5.25 - $5) * $40 = $60 unfavorable.

To calculate the spending variance for variable overhead setup costs, we need to compare the actual variable overhead cost with the budgeted variable overhead cost and multiply the difference by the actual setup-hours per batch. In this case, the actual variable overhead cost is $40 per setup-hour and the budgeted variable overhead cost is $38 per setup-hour, so the spending variance is ($40 - $38) * 5 = $10 unfavorable.

To calculate the flexible-budget variance for variable overhead setup costs, we need to compare the actual setup-hours per batch with the standard setup-hours per batch and multiply the difference by the standard variable overhead cost per setup-hour. In this case, the actual setup-hours per batch is 5 and the standard setup-hours per batch is 5.25, so the flexible-budget variance is ($5.25 - $5) * $38 = $19 unfavorable.

To calculate the spending variance for fixed setup overhead costs, we need to compare the actual fixed setup overhead costs with the budgeted fixed setup overhead costs. In this case, the actual fixed setup overhead costs are $12,000 and the budgeted fixed setup overhead costs are $9,975, so the spending variance is $12,000 - $9,975 = $2,025 unfavorable.

To calculate the production-volume variance for fixed overhead setup costs, we need to compare the actual units produced and sold with the static budget units and multiply the difference by the budgeted fixed setup overhead costs per unit. In this case, the actual units produced and sold are 15,000 and the static budget units are 11,250, so the production-volume variance is (15,000 - 11,250) * $38 = $14,250 unfavorable.