Answer the following question(s)using the information below.Munoz Inc.produces a special line of plastic toy racing cars in batches.To manufacture a batch of the cars Munoz Inc.must setup 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 2012:

-Calculate the rate variance for variable setup overhead costs.
A)$1,900 unfavourable
B)$1,900 favourable
C)$400 unfavourable
D)$600 favourable
E)$600 unfavourable

Question

Answer the following question(s)using the information below.Munoz Inc.produces a special line of plastic toy racing cars in batches.To manufacture a batch of the cars Munoz Inc.must setup 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 2012:
 
-Calculate the rate variance for variable setup overhead costs.
A)$1,900 unfavourable 
B)$1,900 favourable 
C)$400 unfavourable 
D)$600 favourable 
E)$600 unfavourable

Quizplus · Accepted Answer

To calculate the rate variance for variable setup overhead costs, we need to compare the actual variable setup overhead rate per hour with the budgeted variable setup overhead rate per hour.

Actual variable setup overhead rate per hour = Actual variable setup overhead costs / Actual setup hours
= $42,000 / 1,400 hours
= $30 per hour

Budgeted variable setup overhead rate per hour = Budgeted variable setup overhead costs / Budgeted setup hours
= $36,000 / 1,200 hours
= $30 per hour

Therefore, the rate variance for variable setup overhead costs = Actual variable setup overhead rate per hour - Budgeted variable setup overhead rate per hour
= $30 - $30
= $0

Since the actual variable setup overhead rate per hour is the same as the budgeted variable setup overhead rate per hour, there is no variance. However, the question asks for the amount of the variance, so we need to choose the closest answer. The closest answer is E) $600 unfavourable, which is incorrect since there is no variance. Therefore, the best choice is E) None of the above.

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