Question

Raposa, Inc., produces a special line of plastic toy racing cars. Raposa, Inc., produces the cars in batches. To manufacture a batch of the cars, Raposa, 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 amount Static-budget Amounts
Amounts Units produced and sold 15,700 11,950
Batch size (number of units per batch) 325 265
Setup-hours per batch 3 4.25
Variable overhead cost per setup-hour $48 $45
Total fixed setup overhead costs $11,310 $9,010

Calculate the efficiency variance for variable overhead setup costs. (Round all intermediary calculations two decimal places and your final answer to the nearest whole number.)

a. $435 unfavorable
b. $4,810 favorable
c. $4,810 unfavorable
d. $435 favorable

Answer 1

b. $4,810 favorable

Step-by-step explanation:

Efficiency variance for variable overhead setup cost:

A. ((Actual units/Budget batch size)*Budget setup hours) * Budgeted overhead cost) = (((15700/265)*4.25)*$45 = $11,330.66

B . ((Actual units/Actual batch size)*Budget setup hours) * Budgeted overhead cost) = (((15700/325)*3)*$45 = $6,521.53

Efficiency variance for variable overhead setup cost = A - B

Efficiency variance for variable overhead setup cost = $11,330.66 - $6,521.53

Efficiency variance for variable overhead setup cost = $4.809.13 Favorable