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Munoz, Inc. - Efficiency & Spending Variance Calculations

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 2004.
Actual Static-budget
Amounts Amounts
Units produced and sold 15,000 11,250
Batch size (number of units per batch) 250 225
Setup-hours per batch 5 5.25
Variable overhead cost per setup-hour $40 $38
Total fixed setup overhead costs $14,400 $14,000

A. Calculate the efficiency variance for variable setup overhead costs.
B. Calculate the spending variance for variable setup overhead costs.
C. Calculate the flexible-budget variance for variable setup overhead costs.
D. Calculate the spending variance for fixed setup overhead costs.

See attached file for full problem description.


Solution Preview

First, you need to find the number of actual hours required to set up the batch and the
static budget hours required as follows: -

(Units produced and sold/Batch size) x Setup-hours per batch

Actual hours required = (15,000/250) x 5 = 300 hours
Static budget hours = (11,250/225) x 5.25 = 262.50 hours

Then, we can input the information into the following equation to find the variance
required by the ...

Solution Summary

This solution is comprised of a detailed explanation to find the variances for Munoz, Inc. in text file.