The following is monthly budgeted cost and activity information for the four act
ID: 2468518 • Letter: T
Question
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
$79,526
$168,000
3,400 labor hours
$9,612
$30,000
2,700 letters
$182,000
$87,000
2,600,000 lines
$9,460
$76,000
21,500 accounts
In September, actual costs and activity were as follows:
Total Costs
Driver Amount
$249,045
3,440 labor hours
$37,961
2,500 letters
$281,997
2,790,000 lines
$85,852
21,340 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):
1.Account billing
2.Correspondence
Variable
Fixed
Cost Driver
Account inquiry$79,526
$168,000
3,400 labor hours
Correspondence$9,612
$30,000
2,700 letters
Account billing$182,000
$87,000
2,600,000 lines
Bill verification$9,460
$76,000
21,500 accounts
Explanation / Answer
1. Account billing
Activity rate = Variable costs / Cost driver = $182,000/2,600,000 lines = $0.07 per line
Actual lines = 2,790,000 lines
Standard costs = Variable costs for actual lines + Fixed costs = ($0.07 * 2,790,000 lines) + $87,000 = $282,300
Actual costs = $281,997
Variance = Actual costs – Standard costs = $281,997 - $282,300 = $303 Favorable
2. Correspondence
Activity rate = Variable costs / Cost driver = $9,460/21,500 accounts = $0.44 per account
Actual accounts = 21,340 accounts
Standard costs = Variable costs for actual accounts + Fixed costs = ($0.44 * 21,340 accounts) + $76,000 = $85,389.60
Actual costs = $85,852
Variance = Actual costs – Standard costs = $85,852 - $85,389.60 = -$462.40 Unfavorable
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