1.a
Compute the fixed set up related costs.
1.a

Explanation of Solution
Compute the fixed set up related costs.
Budgeted Results | Actual Results | |
Units produced and sold | 10,000 | 9,000 |
Batch size (units) | 250 | 200 |
Number of batches | 40 | 45 |
Set up hours | 4 | 4.25 |
Variable OH cost per set up hour | 160 | 191.25 |
Total set-up related variable | 20 | 19 |
Fixed set up related costs per year | 3,200 | 3,633.75 |
Fixed set up related costs/set up hour: | 20,000 | 21,000 |
$20,000/160 hours | $125 | |
$21,000/191.25 hours | $109.804 |
Table (1)
For the given output for the last year of 9,000 units, the company must have used 36 bathes (9,000 units/250 units per batch). Moreover, at the standard set up hours of 4 per batch, the units produced of 9,000 units produced is equivalent to 144 set-up hours.
Compute the fixed overhead spending variance.
1.b
Compute the production volume variance.
1.b

Explanation of Solution
2.a
Compute the variable setup related overhead spending variance.
2.a

Explanation of Solution
2.b
Compute the variable setup related overhead efficiency variance.
2.b

Explanation of Solution
A favourable spending variance can be attributed to spending on variable setup related overhead costs which is being $1 per hour less than their budgeted standard.
The unfavourable efficiency variance for variable setup related overhead cost is because of a combination of the following mentioned factors:
- The actual output for the period.
- The setup activity
The net of the unfavourable variable setup-related overhead variance denotes a favourable spending variance was not sufficient to offset the unfavourable efficiency variance.
3.
Mention the implication of activity based cost with respect to projected costs.
3.

Explanation of Solution
The fixed setup related costs are controlled to the point of operations. They are controlled mainly through the planning process. The capital budgeting process or the use of zero-based budgeting. These types of costs relate to the capacity or the ability to produce.
Moreover, the variable setup related costs differ in response to multiple underlying factors. As a result, the costs are controlled by attempting to identify and eliminate the non-value-added activities and to perform the value-added activities in an efficient manner. Activity based cost systems must provide a greater control of variable setup related overhead costs in comparison to the traditional systems. This is due to the focus of costing of activities under activity based costing.
4.
Make suitable recommendation to the management of B Manufacturing Company with respect to foreign competitors.
4.

Explanation of Solution
A majority of companies find that a comprehensive
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Chapter 15 Solutions
COST MANAGEMENT LOOSELEAF CUSTOM
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