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 $579,700 (salaries of 17 employees). The fixed costs provide a capacity of 26,350 hours (1,550 per employee at practical capacity). The setup activity was viewed as necessary, and the value-added standard was set at 1,550 hours. Actual setup hours used in the most recent period were 25,050.

Required:

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

Volume Variance	$
Unused Capacity Variance	$

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

Maquina Company
Value- and Non-Value-Added Cost Report
	Value-Added	Non-Value-Added	Actual
Setting up	$	$	$

Answer 1

Calucation of value added, non value added and actual set up cost :

working notes:

no of emp		17
total fc		579700
per emp		34100
no of hours available		26350
actual set up hours		25050
value aded		1550
non valued added		23500
cost per hour		22
value added cost		34100
non valued added cost		517000

VALUE ADDED	NON VALUE ADDED	ACTUAL cost
34100	517000	551100

Calculation of capacity and volume variance

Capacity variance : (std hrs-actual hrs)* std rate

=(1473.529412-1550)*22

=  1682.352936(A)

Volume variance :(Actual labor hours - Budgeted labor hours) x Budgeted cost per hour

= (25050-26350)*22

=  28600(F)