Answer the following questions using the information below:
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 2011:

-Calculate the flexible-budget variance for variable setup overhead costs.
A)$600 favorable
B)$1,300 favorable
C)$600 unfavorable
D)$1,300 unfavorable

Question

Answer the following questions using the information below:
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 2011:
 
-Calculate the flexible-budget variance for variable setup overhead costs.
A)$600 favorable 
B)$1,300 favorable 
C)$600 unfavorable 
D)$1,300 unfavorable

Quizplus · Accepted Answer

The flexible-budget variance for variable setup overhead costs is calculated as (actual setup-hours - flexible budget setup-hours) x flexible budget variable overhead rate.

In this case, the calculation would be:
(2,400 actual setup-hours - 2,000 flexible budget setup-hours) x $0.50 flexible budget variable overhead rate = $200 favorable flexible-budget variance for variable setup overhead costs.

Therefore, the best choice is B) $1,300 favorable, as this is the only option that reflects a favorable budget variance.

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