Ronaldo’s Ice Cream produces summer ice creams for school pupils in Alaska. The company has identified three significant activities and established three standard rates to allocate variable manufacturing overhead instead of one rate based on direct labor-hours.
The information below is for the three activities for last year:

Ronaldo’s Ice Cream produced 210,000 units for the year. The number of orders under flexible budget is 2,100 orders.

Required

1. Compute variable overhead variance analysis for Ronaldo’s Ice Cream using activity-based costing.
2. Comment on the variances computed.

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Activity Purchase orders Product testing Energy Standard Rate $25 per purchase order $0.20 per test minute $0.05 per minute of machine time Standard Quantity per Unit Produced 0.01 orders 1 minute 2 minutes Actual Costs $42,000 $31,000 $27,000 Actual Quantity 1,600 purchase orders 180,000 test minutes 575,000 minutes of machine time