In this problem, you must create the flexible budget and flexible budget varianc
ID: 2468455 • Letter: I
Question
In this problem, you must create the flexible budget and flexible budget variances for two cost items. I suggest the following steps for each item:
determine the cost function for the two items
plug in the appropriate activity amount and compute the budget
subtract the actual cost and compute the variance.
Be sure to follow the instructions about the sign that you should enter with your numerical answer. There is no partial credit - you must get both variances correct in order to get the full 10 points.
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The following is monthly budgeted cost and activity information for the four activity centers in the billing department of Oregon Power Company:
Variable
Fixed
Cost Driver
$82,892
$159,000
3,400 labor hours
$9,234
$27,000
2,700 letters
$182,000
$81,000
2,600,000 lines
$9,020
$76,000
22,000 accounts
In September, actual costs and activity were as follows:
Total Costs
Driver Amount
$238,041
3,260 labor hours
$37,385
2,820 letters
$252,383
2,460,000 lines
$84,397
21,960 accounts
Required
Compute the flexible-budget variances for the following two activity cost items (round all answers to the nearest dollar and enter favorable variances as positive numbers and unfavorable variances as negative numbers):
Account inquiry
Account billing
Variable
Fixed
Cost Driver
Account inquiry$82,892
$159,000
3,400 labor hours
Correspondence$9,234
$27,000
2,700 letters
Account billing$182,000
$81,000
2,600,000 lines
Bill verification$9,020
$76,000
22,000 accounts
Explanation / Answer
Budgeted Activity Center VC per Unit Variable Fixed Cost Driver Account inquiry $ 24.38 $ 82,892 $ 159,000 3,400 labor hours Correspondence $ 3.42 $ 9,234 $ 27,000 2,700 letters Account billing $ 0.07 $ 182,000 $ 81,000 2,600,000 lines Bill verification $ 0.41 $ 9,020 $ 76,000 22,000 accounts Actual Activity Center Total Costs Variable Cost Fixed Cost Driver Amount VC per Unit Account inquiry $ 238,041 $ 79,041 $ 159,000 3,260 labor hours $ 24.25 Correspondence $ 37,385 $ 10,385 $ 27,000 2,820 letters $ 3.68 Account billing $ 252,383 $ 171,383 $ 81,000 2,460,000 lines $ 0.0697 Bill verification $ 84,397 $ 8,397 $ 76,000 21,960 accounts $ 0.38 Flexible budget variance Activity Center Budgeted Amount Flexible Budget Actual Results Flexible budget variance Account inquiry-3260 $ 24.38 $ 79,478.80 $ 79,041 $ 437.80 Favorable Account billing-2,460,000 lines $ 0.07 $ 172,200.00 $ 171,383 $ 817.00 Favorable
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