Bienestar, Inc., has done a cost analysis for its production of vests. The following activities and cost drivers have been developed: Activity Cost Formula
Maintenance $11,000 + $2 per machine hour
Machining $55,000 + $3 per machine hour
Inspection $70,000 + $500 per batch
Setups $2,000 per batch
Purchasing $80,000 + $150 per purchase order
Following are the actual costs of producing 75,000 vests: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for setups in an activity-based performance report?
A) $1,000 F
B) $2,000 F
C) $3,000 F
D) none of these

Question

Bienestar, Inc., has done a cost analysis for its production of vests. The following activities and cost drivers have been developed: Activity Cost Formula
Maintenance $11,000 + $2 per machine hour
Machining $55,000 + $3 per machine hour
Inspection $70,000 + $500 per batch
Setups $2,000 per batch
Purchasing $80,000 + $150 per purchase order
Following are the actual costs of producing 75,000 vests: 5,000 machine hours; 10 batches; 20 purchase orders
 What is the budget variance for setups in an activity-based performance report?
A) $1,000 F 
B) $2,000 F 
C) $3,000 F 
D) none of these

Quizplus · Accepted Answer

The actual cost of setups is $20,000 (10 batches * $2,000 per batch). The expected cost of setups is 75,000 vests / 10,000 vests per batch * $2,000 per batch = $15,000. 
Therefore, the budget variance for setups is $20,000 - $15,000 = $5,000 U (Unfavorable), which means the actual cost of setups is higher than the expected cost. 
Since the question asks for the variance in an activity-based performance report, we only need to consider the setups activity. Therefore, the correct answer is B.