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 flexible-budget variance for variable setup overhead costs.
A)$600 unfavourable
B)$1,300 favourable
C)$600 favourable
D)$1,300 unfavourable
E)$400 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 flexible-budget variance for variable setup overhead costs.
A)$600 unfavourable 
B)$1,300 favourable 
C)$600 favourable 
D)$1,300 unfavourable 
E)$400 unfavourable

Quizplus · Accepted Answer

To calculate the flexible-budget variance for variable setup overhead costs, we need to subtract the flexible-budget variable setup overhead cost from the actual variable setup overhead cost:
Flexible-budget variable setup overhead cost = Flexible-budget setup hours x Variable overhead rate per setup hour = 165 x $8 = $1,320
Actual variable setup overhead cost = $1,300
Flexible-budget variance for variable setup overhead costs = Actual variable setup overhead cost - Flexible-budget variable setup overhead cost = $1,300 - $1,320 = $20 favourable
Therefore, the best choice is B because it is the only option that represents a favourable variance for variable setup overhead costs.

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