Question

Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below: Fixed Element per Month Variable Element per Customer Served Actual Total for May Revenue $ 6,200 $ 196,000 Employee salaries and wages $ 69,000 $ 1,600 $ 122,900 Travel expenses $ 610 $ 17,700 Other expenses $ 48,000 $ 45,200 When preparing its planning budget the company estimated that it would serve 30 customers per month; however, during May the company actually served 35 customers.

What activity variance would Adger report in May with respect to its revenue? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

What activity variances would Adger report with respect to each of its expenses for May?

Activity Variance Employee

salaries and wages

Travel expenses

Other expenses

Answer 1

	Flexible Budget	Activity Variance		Planning Budget
Revenue	217000	31000	F	186000
	Flexible Budget	Activity Variance		Planning Budget
Employee salaries and wages	125000	8000	U	117000
Travel expenses	21350	3050	U	18300
Other expenses	48000	0	None	48000
Workings:
Revenue:
Flexible Budget = 6200*35=$217000
Planning Budget=6200*30=$186000
Employee salaries and wages
Flexible Budget=69000+(1600*35)=125000
Planning Budget=69000+(1600*30)=$117000
Travel expenses:
Flexible Budget = 610*35=$21350
Planning Budget=610*30=$18300