=+11-49 KK Variance analysis with activity-based costing and batch-level direct costs OBJECTIVE 6 Happy Days Ltd produces high-quality, personalised desk calendars that businesses give away for promotional purposes. It accounts for the production of these calendars with an ABC system. For 2015, Happy Days expected to produce and sell 22000 units, but actual output was only 19000 units.

You are a new management accountant at the company. You have been asked to calculate the variances for the batch-level costs. The two main batch-level costs are set-up and quality inspection. Quality inspection is driven by inspection hours, and set-up is driven by the number of set-up hours.

Set-up Quality inspection Static budget Batch size (units per batch) 100 120 Cost driver (hours) per batch 8 10 Cost per hour $10.75 $17.50 Actual result Batch size (units per batch) 75 100 Cost driver (hours) per batch 7 9 Cost per hour $12.00 $15.50 Required 1 Calculate the flexible-budget, price and efficiency variances for both batch activities.