Question

1)

Witten Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes.

	Fixed Element per Month			Variable Element per Customer Served
Revenue				$	6,600
Employee salaries and wages	$	55,100		$	1,000
Travel expenses				$	600
Other expenses	$	43,100

A total of 27 customers were actually servedduring January.

The total expenses in the flexible budget for Januarywould have been closest to:

$113,748

$133,400

$141,400

$139,600

2)

Descamps Inc. has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours.

Inputs	Standard Quantity or Hours per Unit of Output	Standard Price or Rate
Variable manufacturing overhead	0.20 hours	$6.10 per hour

The company has reported the following actual results for the product for July:

Actual output		4,200	units
Actual direct labor-hours		780	hours
Actual variable overhead rate	$	6.20	per hour

The variable overhead rate variance for the month is closest to:

$78 F

$84 F

$78 U

$84 U

Answer 1

(1) The total expenses in the flexible budget for January would have been closest to $ 1,41,400

	Flexible Budget
customers were actually served	27 Cutomers
Expenses
Employee salaries and wages [$55,100 + (27 x 100) ]	$82,100
Travel expenses [ 27 x $600 ]	$16,200
Other expenses	$43,100
Total expenses	$ 1,41,400

(2) The variable overhead rate variance for the month is closest to $78 U (Unfavorable)

Variable overhead rate variance = (Actual hours × Actual rate) ? (Actual hours × Standard rate)

= [ 780 Hours x $6.20 ] – [ 780 Hours x $6.10 ]

= $ 4,836 - $4,758

= $78 U (Unfavorable)