Answer the Following Questions Using the Information Below:
Coober Pedy

question 162

Multiple Choice

Answer the following questions using the information below:
Coober Pedy Industries produces air purifiers.Coober Pedy produces the air purifiers in batches.To manufacture a batch of the purifiers,Coober Pedy must set up the machines and assembly line tooling.Set-up costs are batch-level costs because they are associated with batches rather than individual units of products.A separate Set-up Department is responsible for setting up machines and tooling for different models of the air purifiers.
Set-up overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of set-up-hours.The following information pertains to June 2018:
$$\begin{array} { l r r } & \begin{array} { r } \text { Budget } \\\text { Amounts }\end{array} & \begin{array} { r } \text { Actual } \\\text { Amounts }\end{array} \\\text { Units produced and sold } & 10000 & 9000 \\\text { Batch size (number of units per batch) } & 400 & 375 \\\text { Set-up-hours per batch } & 6 & 5.5 \\\text { Variable overhead cost per set-up-hour } & \$ 50 & \$ 52 \\\text { Total fixed set-up overhead costs } & \$ 18000 & \$ 17750\end{array}$$
-Calculate the production-volume variance for fixed set-up overhead costs.

• A)$250 unfavourable
• B)$1800 unfavourable
• C)$250 favourable
• D)$1800 favourable

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Definitions:

Operating Leverage

A metric assessing the impact of increased sales on operational earnings, revealing the balance between a firm's fixed and variable expenses.

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability that excludes interest and income tax expenses to show the business's core profitability.

DOL

Department of Labor, a U.S. government department responsible for occupational safety, wage standards, unemployment insurance benefits, re-employment services, and some economic statistics.

Financial Leverage

The use of debt to increase the potential return of an investment.