Answer the following questions using the information below:
Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up the machines and assembly line tooling. 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 tooling for different models of the air purifiers.
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 spending variance for fixed setup overhead costs.
A)$250 unfavorable
B)$150 unfavorable
C)$250 favorable
D)$150 favorable

Question

Answer the following questions using the information below:
Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up the machines and assembly line tooling. 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 tooling for different models of the air purifiers.
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 spending variance for fixed setup overhead costs.
A)$250 unfavorable 
B)$150 unfavorable 
C)$250 favorable 
D)$150 favorable

Quizplus · Accepted Answer

The spending variance for fixed setup overhead costs is calculated as actual fixed overhead cost - budgeted fixed overhead cost. 
Actual fixed overhead cost = $22,500 
Budgeted fixed overhead cost = $23,000 
Therefore, spending variance = Actual - budgeted = $22,500 - $23,000 = $250 favorable. 
Thus, the correct answer is C, $250 favorable.

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