9. Scharfenberg Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for March.
Fixed Element per Month |
Variable Element per Well Serviced |
Actual Total for March |
||
Revenue....................................... |
$5,700 |
$145,100 |
||
Employee salaries and wages........ |
$50,300 |
$1,200 |
$79,300 |
|
Servicing materials........................ |
$500 |
$12,200 |
||
Other expenses............................. |
$31,600 |
$31,400 |
When the company prepared its planning budget at the beginning of March, it assumed that 23 wells would have been serviced. However, 25 wells were actually serviced during March.
The activity variance for “Other expenses” for March would have been closest to:
A) $0
B) $200 F
C) $2,712 F
D) $200 U
The revenue variance for March would be closest to:
A) $2,640 U
B) $2,640 F
C) $1,224 U
D) $1,224 F
Answer a.
Flexible Budget for Other Expenses = $31,600
Planning Budget for Other Expenses = $31,600
Activity Variance for Other Expenses = Flexible Budget for Other
Expenses - Planning Budget for Other Expenses
Activity Variance for Other Expenses = $31,600 - $31,600
Activity Variance for Other Expenses = $0
Answer b.
Actual Result for Revenue = $145,100
Flexible Budget for Revenue = $5,700 * Actual Number of Wells
Served
Flexible Budget for Revenue = $5,700 * 25
Flexible Budget for Revenue = $142,500
Revenue Variance = Actual Result for Revenue - Flexible Budget
for Revenue
Revenue Variance = $145,100 - $142,500
Revenue Variance = $2,600 Favorable
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