Problem:
Munoz, Inc. produces a special line of plastic toy racing cars. Munoz, Inc. produces the cars in batches. To manufacture a batch of the cars, Munoz, 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 2004.
Actual Static-budget
Amounts Amounts
Units produced and sold 15,000 11,250
Batch size (number of units per batch) 250 225
Setup-hours per batch 5 5.25
Variable overhead cost per setup-hour $40 $38
Total fixed setup overhead costs $14,400 $14,000
Question 1: Calculate the efficiency variance for variable setup overhead costs.
Question 2: Calculate the spending variance for variable setup overhead costs.
Question 3: Calculate the flexible-budget variance for variable setup overhead costs.
Question 4: Calculate the spending variance for fixed setup overhead costs.