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 $390,600 (salaries of 12 employees). The fixed costs provide a capacity of 18,600 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 17,330.

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 16f3e8fb8026f8e_1	FavorableUnfavorable
Unused Capacity Variance	$fill in the blank 16f3e8fb8026f8e_3	FavorableUnfavorable

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

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

	Value-Added	Non-Value-Added	Actual
Setting up	$fill in the blank c49532f4effc045_1	$fill in the blank c49532f4effc045_2	$fill in the blank c49532f4effc045_3