The company expects to perform 25 setups in May.
-Refer to Figure 11-5. Actual costs incurred were $246,000 fixed and $144,000 variable. If the actual number of setups in May was 30, what is the activity-based flexible budget variance?
A) $15,000 U
B) $15,000 F
C) $12,000 F
D) $12,000 U

Question

The company expects to perform 25 setups in May.
-Refer to Figure 11-5. Actual costs incurred were $246,000 fixed and $144,000 variable. If the actual number of setups in May was 30, what is the activity-based flexible budget variance?
A) $15,000 U 
B) $15,000 F 
C) $12,000 F 
D) $12,000 U

Quizplus · Accepted Answer

The activity-based flexible budget variance can be calculated as follows:

Actual costs - (Flexible budget based on actual setup hours - Budgeted fixed costs)

Flexible budget based on actual setup hours = Budgeted variable cost per unit * Actual setup hours

Budgeted variable cost per unit = Total budgeted variable costs / Total budgeted setup hours

Total budgeted variable costs = $480,000 
Total budgeted setup hours = 25 
Budgeted variable cost per unit = $480,000 / 25 = $19,200

Flexible budget based on actual setup hours = $19,200 * 30 = $576,000

Budgeted fixed costs = $250,000

Therefore,

Activity-based flexible budget variance = $246,000 + $144,000 - ($576,000 - $250,000) = $12,000 F

So, the correct answer is C.

The Company Expects to Perform 25 Setups in May