Walterboro, Inc., has done a cost analysis for its production of decals. The following activities and cost drivers have been developed: Activity Cost Formula
Maintenance $11,000 + $0.11 per machine hour
Machining $25,000 + $0.50 per machine hour
Setups $50 per batch
Purchasing $200 + $45 per purchase order
Following are the actual costs of producing 85,000 decals: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budget variance for machining in an activity-based performance report?
A) $50 F
B) $50 U
C) $800 U
D) $800 F

Question

Walterboro, Inc., has done a cost analysis for its production of decals. The following activities and cost drivers have been developed: Activity Cost Formula
Maintenance $11,000 + $0.11 per machine hour
Machining $25,000 + $0.50 per machine hour
Setups $50 per batch
Purchasing $200 + $45 per purchase order
Following are the actual costs of producing 85,000 decals: 5,000 machine hours; 10 batches; 20 purchase orders
 What is the budget variance for machining in an activity-based performance report?
A) $50 F 
B) $50 U 
C) $800 U 
D) $800 F

Quizplus · Accepted Answer

To calculate the budget variance for machining, we need to first calculate the budgeted cost for machining:
Budgeted cost for machining = $25,000 + ($0.50 per machine hour x 5,000 machine hours) = $27,500

Actual cost for machining = ?

Given information: 
Actual machine hours = 5,000 machine hours
Actual cost for machining = ?

Now we can calculate the actual cost for machining:
Actual cost for machining = $25,500 (given)
Budgeted cost for machining = $27,500 (calculated above)
Budget variance for machining = Actual cost for machining - Budgeted cost for machining
= $25,500 - $27,500 
= $800 U

Therefore, the correct answer is C: $800 U.