Question 43 Lochner Corporation is an oil well service company that measures its

Question

Question 43

Lochner Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for June.

When the company prepared its planning budget at the beginning of June, it assumed that 24 wells would have been serviced. However, 26 wells were actually serviced during June.

The activity variance for “Employee salaries and wages” for June would have been closest to:

$2,400 F

$4,300 U

$4,300 F

$2,400 U

Fixed Element per Month Variable Element per Well Serviced Actual Total for June Revenue $ 5,600 $ 148,000 Employee salaries and wages $ 40,600 $ 1,200 $ 73,700 Servicing materials $ 500 $ 13,600 Other expenses $ 42,800 $ 43,300

Explanation / Answer

Employee salaries and wages in planning budget = 40600+(1200*24)= 69400 Employee salaries and wages in flexible budget = 40600+(1200*26)= 71800 Activity variance = 71800-69400 = 2400U Option 4 is correct

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