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

Rico Company produces custom-made machine parts. Rico recently has implemented an activity-based management (ABM) system with the objective of reducing costs. Rico 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 $524,700 (salaries of 15 employees). The fixed costs provide a capacity of 23,850 hours (1,590 per employee at practical capacity). The setup activity was viewed as necessary, and the value-added standard was set at 1,590 hours. Actual setup hours used in the most recent period were 22,630.

Required:

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

Volume Variance	$fill in the blank 5fb80bf2301a069_1	FavorableUnfavorable
Unused Capacity Variance	$fill in the blank 5fb80bf2301a069_3	FavorableUnfavorable

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

Rico Company Value- and Non-Value-Added Cost Report

	Value-Added	Non-Value-Added	Actual
Setting up	$fill in the blank e978b30f9fb8027_1	$fill in the blank e978b30f9fb8027_2	$fill in the blank e978b30f9fb8027_3