Question

Calculation of Value-Added and Non-Value-Added Costs, Activity Volume and Unused Capacity Variances

Maquina Company produces custom-made machine parts. Maquina recently has implemented an activity-based management (ABM) system with the objective of reducing costs. Maquina has begun analyzing each activity to determine ways to increase its efficiency. Setting up equipment was among the first group of activities to be carefully studied. The study revealed that setup hours was a good driver for the activity. During the last year, the company incurred fixed setup costs of $585,000 (salaries of 13 employees). The fixed costs provide a capacity of 29,250 hours (2,250 per employee at practical capacity). The setup activity was viewed as necessary, and the value-added standard was set at 2,250 hours. Actual setup hours used in the most recent period were 27,160.

Required:

1. Calculate the volume and unused capacity variances for the setup activity. Enter all amounts as positive values.

2. Prepare a report that presents value-added, non-value-added, and actual costs for setup.

Answer 1

In case of any doubt please comment below.

Thank you. Please upvote it.....