Question

Jake's Roof Repair has provided the following data concerning its costs: Wages and salaries Parts and supplies Equipment depreciation Truck operating expenses Rent Administrative expenses Fixed Cost Cost per per Month Repair- Hour $21,000 $15.00 $ 7.60 $ 2,790 $ 0.40 $ 5,770 $ 1.80 $ 4,640 $ 3,900 $ 0.50 For example, wages and salaries should be $21,000 plus $15.00 per repair hour. The company expected to work 2,700 repair-hours in May, but actually worked 2,600 repair-hours. The company expects its sales to be $46.00 per repair-hour. Required: Compute the company's activity variances for May. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

Jake's Roof Repair Activity Variances For the month ended May 31 Flexible Planning Budget Budget Activity Variances Repair hours 2600 2700 Revenue 119600 124200 -4600 Expenses: Wages and salaries 60000 61500 1500 Parts and Supplies 19760 20520 Equipment Depreciation 3830 3870 Truck operating expenses 10450 106301 180 Rent 4640 4640 Administrative expenses 5200 5250 50 F Total Expense 103880106410 2530F Net operating Income 15720 17790 -2070U ol

Working Notes: Revenue = $46 per repair hour For flexible budget, Revenue will be ($46*2600 hours) $119600 For Planning budget, Revenue will be ($46*2700 hours) $124200 Here For Revenue, Activity Variance is Unfavourable, because as we can observe that planning budget revenue is $124200 but actual revenue earned i.e Flexible budget is $119600 which less than by $4600 when compared to planning budget. So for Revenue purpose Budget is unfavourable. Wages and salaries = [ Fixed cost per month + (Cost per repair hour*Repair hours)] For flexible budget, Wages and salaries will be ($21000+($15*2600 hours)] $60000 For Planning budget, Wages and salaries will be [$21000+($15*2700 hours)] $61500 Parts and Supplies = (Cost per repair hour" Repair hours) For flexible budget, Parts and supplies will be ($7.60*2600 hours) $19760 For Planning budget, Parts and supplies will be ($7.60*2700 hours) $20520 Equipment Depreciation = [ Fixed cost per month + (Cost per repair hour*Repair hours)] For flexible budget, Equipment Depreciation will be [$2790+($0.40*2600 hours)] $3830 For Planning budget, Equipment Depreciation will be ($2790+($0.40*2700 hours) $3870 Truck Operating Expenses = [ Fixed cost per month + (Cost per repair hour*Repair hours)] For flexible budget, Truck Operating expenses will be ($5770+($1.80*2600 hours)] $10450 For Planning budget, Truck Operating Expenses will be ($5770+($1.80*2700 hours) $10630

Rent is given directly in the problem i.e $4640 per month. Rent is fixed expense. it does not depends on the production. Administrative Expenses = [ Fixed cost per month + (Cost per repair hour*Repair hours)] For flexible budget, Administrative expenses will be ($3900+($0.50*2600 hours)] $5200 For Planning budget, Administrative expenses will be ($3900+($0.50*2700 hours)] $5250 From the above table, we can observe that budget is Favourable for all the Expenses. Because the Actual expenses are less than the planning expenses. It means we are expecting more expenses when we are planning. But in Actual situation we incurred less expenses compared to planning budget. It means nothing but savings in expenses. That's why Budget is Favourable for all Expenses. But Even though the budget is favourable for all expenses, but finally the budget is Unfavourable for the Net operating Income because of Budget is Unfavourable to revenue Earned.