The following is monthly budgeted cost and activity information for the four act
ID: 2504868 • 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
$78,177
$166,000
3,300 labor hours
$9,856
$25,000
2,800 letters
$120,000
$73,000
2,400,000 lines
$7,770
$77,000
18,500 accounts
In September, actual costs and activity were as follows:
Total Costs
Driver Amount
$244,391
3,280 labor hours
$34,455
2,970 letters
$192,947
2,380,000 lines
$85,558
18,310 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 billing?
Bill verification?
Variable
Fixed
Cost Driver
Account inquiry$78,177
$166,000
3,300 labor hours
Correspondence$9,856
$25,000
2,800 letters
Account billing$120,000
$73,000
2,400,000 lines
Bill verification$7,770
$77,000
18,500 accounts
Explanation / Answer
Budgeted :
Correspondence : FC = 21000, VC =9520 for 2800 Letters, TC = $30,520
So VC per letter = 9520/2800 = $3.40
Acct Billing : FC= 153,000, VC = 84,000 for 2550,000 lines, TC=237,000
VC per '000 lines = $84000/2550 = $32.94
Actual :
Correspondence : 2620 Letters
FC = 21000, VC = 2620*$3.40 = $8,908
So Total COst = FC+VC = $29,908
So Correspondence Variance = Budgeted - Actual
= 30520 - 29908 = $612 F ....Ans (a)
Acct Billing : 2380,000 lines
FC= 153,000, VC = 2380 *$32.94 = $78,400
So Total Cost = FC+VC = 153000+ $78,400 = $231,400
So Acct Billing Variance = Budgeted - Actual
= 237,000 - 231,400 = 5,600F ....Ans (b)
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