Question

Trevorrow Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During June, the company budgeted for 6,500 units, but its actual level of activity was 6,460 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for June: Data used in budgeting: Fixed element per month Variable element per unit Revenue - $ 27.90 Direct labor $ 0 $ 3.40 Direct materials 0 10.20 Manufacturing overhead 37,500 1.40 Selling and administrative expenses 23,100 0.40 Total expenses $ 60,600 $ 15.40 Actual results for June: Revenue $ 187,340 Direct labor $ 21,465 Direct materials $ 63,697 Manufacturing overhead $ 46,449 Selling and administrative expenses $ 25,739 The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for June would be closest to:

Multiple Choice

• $9,840 F

• $9,340 U

• $9,840 U

• $9,340 F

Answer 1

Trevorrow Corporation Flexible Budget Performace Report For the Month Ended Julne 30 Actual Results Revenue and Spending Flexible Budget (6,460 units) Variance |(6,460 units) [A] [A-B] [B] 187,340 7,106 F 180,234 Revenue (a) Expenses: Direct materials Direct labor Manufacturing overhead Selling and administrative expense Total Expenses (b) Net Operating Income (a-b) 63,697 21,465 46,449 25,739 157,350 29,990 2,195 F 499F 95 F 55U 2,734 F 9,840 F 65,892 21,964 46,544 25,684 160,084 20,150 Revenue and spending variance $ 9,840 F Working Notes: Flexible Budget Actual Units sold Revenue (6,460 x $ 27.90) Direct materials (6,460 x $ 10.20) Direct labor (6,460 x $ 3.40) Manufacturing overhead (37,500 + 6,460 x $ 1.40) Selling and administrative (23,100+ 6,460 x $0.40) 6,460 180,234 65,892 21,964 46,544 25,684