Answer the following question(s)using the information below.Lukehart Industries Inc.produces air purifiers in batches.To manufacture a batch of the purifiers Lukehart Inc.must setup 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 2012:

-Calculate the rate variance for variable setup overhead costs.
A)$150 unfavourable
B)$150 favourable
C)$264 unfavourable
D)$264 favourable
E)$114 favourable

Question

Answer the following question(s)using the information below.Lukehart Industries Inc.produces air purifiers in batches.To manufacture a batch of the purifiers Lukehart Inc.must setup 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 2012:
 
-Calculate the rate variance for variable setup overhead costs.
A)$150 unfavourable 
B)$150 favourable 
C)$264 unfavourable 
D)$264 favourable 
E)$114 favourable

Quizplus · Accepted Answer

To calculate the rate variance for variable setup overhead costs, we use the formula:
Rate variance = (Actual variable setup overhead rate - Budgeted variable setup overhead rate) x Actual setup hours

Actual variable setup overhead rate = $1,320 ÷ 600 = $2.20 per setup hour
Budgeted variable setup overhead rate = $2.00 per setup hour
Actual setup hours = 550

Rate variance = ($2.20 - $2.00) x 550
= $110

Since the actual variable setup overhead rate is higher than the budgeted rate, the variance is unfavourable. Therefore, the answer is C) $264 unfavourable.

As there is only one correct answer, there are no best choices to make.

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