Question

ABC Company's flexible budget for the 1,000 units actually sold this period shows $14,250 in revenue....

ABC Company's flexible budget for the 1,000 units actually sold this period shows $14,250 in revenue. ABC sold 25% more units than planned this period. What is the activity variance?

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Answer #1

Calculation of Activity Variance for ABC Company

Activity Variance for Revenue = Revenue for Flexible Budget - Revenue for Static Budget

Revenue for Flexible Budget = $ 14,250

Revenue for Static Budget = $ 11,400

Activity Variance for Revenue = 14,250 - 11,400

Activity Variance for Revenue = $ 2,850 Favourable Variance

Supporting Work:-

Flexible Budget Units = 1,000

Let Static Budget Units = X

Static Budget Units + 25% of Static Budget Units = Flexible Budget Units

X + 0.25X = 1,000

1.25X = 1,000

X = 1,000 / 1.25

X = 800 Units

Static Budget Units = 800 Units

Flexible Budget Revenue = Flexible Budget Units * Standard Revenue per Unit

14,250 = 1,000 * Standard Revenue per Unit

Standard Revenue per Unit = 14,250 / 1,000

Standard Revenue per Unit = $ 14.250

Revenue for Static Budget = Static Budget Units * Standard Revenue per Unit

= 14.250 * 800

= $ 11,400

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