Question

1) Tomlison Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During October, the company budgeted for 5,100 units, but its actual level of activity was 5,150 units. The company has provided the following data concerning the formulas to be used in its budgeting:

	Fixed Element per Month			Variable element per unit
Revenue		-		$	42.40
Direct labor	$	0		$	7.70
Direct materials		0			15.40
Manufacturing overhead		46,800			1.20
Selling and administrative expenses		21,000			0.40
Total expenses	$	67,800		$	24.70

The selling and administrative expenses in the planning budget for October would be closest to:

Multiple Choice

a) $23,103

b) $23,060

c) $23,330

d) $23,040

2)

Ramkissoon Midwifery's cost formula for its wages and salaries is $2,060 per month plus $442 per birth. For the month of July, the company planned for activity of 117 births, but the actual level of activity was 114 births. The actual wages and salaries for the month was $54,500. The spending variance for wages and salaries in July would be closest to:

Multiple Choice

a) $2,052 U

b) $726 F

c) $2,052 F

d) $726 U

Answer 1

Question – 1;

Answer is option (d) $23040

Explanation;

Selling and administrative expenses in the planning budget for October would be calculated as follow;

Fixed selling and administrative expenses + (Variable cost per unit * Budgeted units)

$21000 + (5100 * $0.40)

= $21000 + $2040

= $23040

Question – 2;

Answer is option (a) $2052 U

Explanation;

Spending variance for wages and salaries in July would be calculated as follow;

Spending variance = (Actual rate – Planned rate) * Actual level of activity

Actual rate ($54500 – $2060) / 114 = $460

Planned rate = $442

Actual level of activity = 114

Hence, Spending variance = ($442 – $460) * 114

= $2052 Unfavourable