In this problem, yon must create the flexible budget and flexible budget varianc

Question

In this problem, yon must create the flexible budget and flexible budget variances for two cost items. I suggest the following steps for each item: 1. determine the cost function for the two items 2. plug in the appropriate activity amount and compute the budget 3. 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. The following is monthly budgeted cost and activity information for the four activity centers in the billing department of Oregon Power Company: In September, actual costs and activity were as follows: 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 Correspondence

Explanation / Answer

1. Account Enquiry

Variable cost per labor hour = $84,490/3,400 labor hours = $24.85

Standard cost = ($24.85 * 3,310 labor hours) + $155,000 = $237,253.50

Actual costs = $236,563

Flexible budget variance = Actual costs – Standard costs = $236,563 - $237,253.50 = $690.50 Favorable

2. Correspondence

Variable costs per letter = $9,828 / 2,800 letters = $3.51 per letter

Standard costs = ($3.51 * 2,750 letter) + $23,000 = $32,652.50

Actual costs = $32,328

Flexible budget variance = Actual costs – Standard costs = $32,328 - $32,652.50 = $324.50 Favorable

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