The following is total monthly budgeted cost and activity information for the fo
ID: 2522389 • Letter: T
Question
The following is total monthly budgeted cost and activity information for the four activity centers in the billing department of Oregon Power Company:
Variable
Fixed
Cost Driver
$82,926
$167,000
3,400 labor hours
$9,396
$25,000
2,700 letters
$147,000
$88,000
2,450,000 lines
$11,890
$77,000
20,500 accounts
In September, actual costs and activity were as follows:
Total Costs
Driver Amount
$252,913
3,540 labor hours
$34,868
2,630 letters
$226,812
2,330,000 lines
$88,468
20,470 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):
Bill verification: _________
Account inquiry: _________
Variable
Fixed
Cost Driver
Account inquiry$82,926
$167,000
3,400 labor hours
Correspondence$9,396
$25,000
2,700 letters
Account billing$147,000
$88,000
2,450,000 lines
Bill verification$11,890
$77,000
20,500 accounts
Explanation / Answer
Answer
1.Calculation of variance of Bill verification:
Bill verification :
Flexible = 77000 + $11,890/20500*20470 =$88873
Actual =$88,468
variances =$88873-$88468
=$405Favourable
2. Calculation of variance of Account inquiry.
Fixed cost = $167,000
Standard variable cost = $82,926 / 3,400 = $24.39 per Labor hour.
Actual cost as per standard rate = 3,540 x $24.39 = $86341
Fixed cost = $167,000
Total cost = $253,341
Actual cost Inccured = $252,913
Variance = ($428) Unfavorable
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