Mattison Company has developed cost formulas for the drivers of the following production activities: If the actual activity was 20 setups and the actual fixed cost for inspections was $28,000 and the variable cost for
Inspections was $5,000, the total variance for inspections is due to
A) unfavorable variance on fixed costs.
B) favorable variance on fixed costs.
C) favorable variance on variable costs.
D) unfavorable variance on variable costs.

Question

Mattison Company has developed cost formulas for the drivers of the following production activities:  If the actual activity was 20 setups and the actual fixed cost for inspections was $28,000 and the variable cost for
Inspections was $5,000, the total variance for inspections is due to
A) unfavorable variance on fixed costs. 
B) favorable variance on fixed costs. 
C) favorable variance on variable costs. 
D) unfavorable variance on variable costs.

Quizplus · Accepted Answer

To calculate the total variance for inspections, we need to compare the actual cost with the expected cost based on the cost formula given. The cost formula for inspections includes a fixed cost component and a variable cost component. The fixed costs are expected to remain the same regardless of the level of production activity, while the variable costs increase in proportion to the level of activity.

Actual Total Cost for Inspections = Actual Fixed Cost + Actual Variable Cost
= $28,000 + $5,000 x 20
= $128,000

Expected Total Cost for Inspections = Expected Fixed Cost + Expected Variable Cost
= $35,000 + $4,500 x 20
= $125,000

Total Variance for Inspections = Actual Total Cost - Expected Total Cost
= $128,000 - $125,000
= $3,000

Since the actual fixed cost was lower than the expected fixed cost, there's a favorable variance on fixed costs. So, the correct answer is B) favorable variance on fixed costs.

Mattison Company Has Developed Cost Formulas for the Drivers of the Following