Reference no: EM132953851

Munoz Inc. produces a special line of plastic toy racing cars in batches. To manufacture a batch of the cars Munoz Inc. must setup 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 July.

                                                                   Actual Amounts                   Static-budget 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

Problem 1. Calculate the rate variance for variable setup overhead costs.

a. $400 favourable
b. $600 unfavourable
c. $1,900 unfavourable
d. $1,900 favourable

Problem 2. Calculate the rate variance for fixed setup overhead costs

a. $400 unfavourable
b. $600 unfavourable
c. $600 favourable
d. $1,600 unfavourable