Question

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​ 2015:

	Actual Amounts	​Static-budget Amounts
Units produced and sold	14 comma 80014,800	11 comma 80011,800
Batch size​ (number of units per​ batch)	285285	245245
​Setup-hours per batch	44	5.255.25
Variable overhead cost per​ setup-hour	$ 43$43	$ 40$40
Total fixed setup overhead costs	$ 14 comma 695$14,695	$ 12 comma 645$12,645

Calculate the efficiency variance for variable overhead setup costs.

A.

$ 623$623

favorable

B.

$ 4 comma 377$4,377

favorable

C.

$ 4 comma 377$4,377

unfavorable

D.

$ 623$623

unfavorable

Click to select your answer.

0%

Answer 1

Efficiency variance for variable overhead setup costs.

The variable overhead efficiency variance is the difference between the actual hours worked and the budgeted hours worked multiplied by the Variable overhead cost per​ setup-hour

Efficiency variance for variable overhead setup costs. = (Actual Hours worked – Budgeted hours worked) x Variable overhead cost per​ setup-hour

Actual Hours worked = 207.72 Hours [(14,800 units / 285 units) x 4 Hours per unit]

Budgeted Hours worked = 317.14 Hours [(14,800 units / 245 units) x 5.25 Hours per unit]

Therefore, the Efficiency variance for variable overhead setup costs. = (Actual Hours worked – Budgeted hours worked) x Variable overhead cost per setup-hour

= (207.72 Hours – 317.14 Hours) x $40 per hour

= -109.42 Hours x $40 per hour

= -$4,377 F (Favorable)

“Hence, the efficiency variance for variable overhead setup costs would be (B). -$4,377 F (Favorable)”