Question

Jake's Roof Repair has provided the following data concerning its costs: Fixed Cost per Month $ 20,800 Wages and salaries Parts and supplies Equipment depreciation Truck operating expenses Rent Administrative expenses Cost per Repair-Hour $15.00 $ 7.20 $ 0.50 $ 1.50 $ 2,740 $ 5,710 $ 4,640 $ 3,830 $ 0.70 For example, wages and salaries should be $20,800 plus $15.00 per repair-hour. The company expected to work 2,800 repair-hours in May, but actually worked 2,700 repair-hours. The company expects its sales to be $48.00 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.) Jake's Roof Repair Activity Variances For the Month Ended May 31 Revenue $ 4,800 u Expenses: Wages and salaries 2,000 F Parts and supplies 7201F Equipment depreciation 50F Truck operating expenses 150 F Rent 0 None Administrative expenses 701F Total expense 2,990 F Net operating income $ 1,8100

Answer 1

• Requirement

	Activity variance
Revenues	$4,800	U
Expenses:
Wages & Salaries	$1,500	F
Part & Supplies	$720	F
Equipment depreciation	$50	F
Truck Operating expenses	$150	F
Rent	$0	None
Adminsitrative expense	$70	F
Total Expenses	$2,490	F
Net Operating Income	$2,310	U

--Workings

Conceptual notes:

#1: Flexible Budget data is based on 'budgeted rates' applied on 'actual level/output/units'

#2: Activity Variance = Difference between 'Flexible Budget data' and 'Static/Planned Budget data'.

* Favourable Variance in case of Revenues occurs when:

>Flexible budget revenues are MORE than Static/Planned budget revenues [Activity Variance]

* Unfavourable Variance in case of Revenues occurs when:

>Flexible budget revenues are LESS than Static/Planned budget revenues [Activity Variance]

* Favourable Variance in case of Expenses/Costs occurs when:

>Flexible budget expenses/costs are LESS than Static/Planned budget expenses/costs [Activity Variance]

* Unfavourable Variance in case of Expenses/Costs occurs when:

>Flexible budget expenses/costs are MORE than Static/Planned budget expenses/costs [Activity Variance]

	WORKING COLUMNS						Flexible Budget	Planning Static Budget
Repair hours							2,700	2,800
							[C = Fixed + (Var x Actual units)]	[E= Fixed + (Var x Planned units)]
	Fixed part	+(	Variable part	x	Actual/Planned units	)
Revenues		(	$               48.00	x	2700 or 2800	)	$129,600	$134,400
Expenses:
Wages & Salaries	$20,800	+(	$               15.00	x	2700 or 2800	)	$61,300	$62,800
Part & Supplies	$0	+(	$                  7.20	x	2700 or 2800	)	$19,440	$20,160
Equipment depreciation	$2,740	+(	$                  0.50	x	2700 or 2800	)	$4,090	$4,140
Truck Operating expenses	$5,710	+(	$                  1.50	x	2700 or 2800	)	$9,760	$9,910
Rent	$4,640	+(	$                      -	x	2700 or 2800	)	$4,640	$4,640
Adminsitrative expense	$3,830	+(	$                  0.70	x	2700 or 2800	)	$5,720	$5,790
Total Expenses	$37,720	+(	$               24.90	x	2700 or 2800	)	$104,950	$107,440
Net Operating Income							$24,650	$26,960