Question

Prestridge Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for August.

	Fixed Element per Month			Variable Element per Customer Served		Actual Total for August
Revenue				$	4,100	$	120,500
Employee salaries and wages	$	41,500		$	1,000	$	71,200
Travel expenses				$	500	$	14,800
Other expenses	$	38,900				$	38,400

When the company prepared its planning budget at the beginning of August, it assumed that 31 customers would have been served. However, 29 customers were actually served during August.

The variance for net operating income in the Revenue and Spending Variances column of a report comparing actual results to the flexible budget for August would have been closest to:

Multiple Choice

• $4,100 U

• $4,100 F

• $1,100 U

• $1,100 F

Answer 1

Correct answer----------$1,100 F

The variance is favorable because the loss as per flexible budget was $5000 but in actual loss is only $3900 so loss of $1100 decreased.

Revenues and Spending Variance
Revenue	-$ 1,600.00
Expenses:
Employee salaries and wages	-$ 700.00
Travel expense	-$ 300.00
Other Expenses	$ 500.00
Total Expenses	-$ 500.00
Net Operating Income	-$ 1,100.00

.

	Units (A)	Fixed cost (B)	Variable cost per unit ©	Flexible cost and revenue (D=(A x C) +B)
Revenue	29		$ 4,100.00	$ 118,900.00
Expenses:	29
Employee salaries and wages	29	$ 41,500.00	$ 1,000.00	$     70,500.00
Travel expenses	29		$     500.00	$     14,500.00
Other expenses	29	$ 38,900.00		$     38,900.00
Total Expenses				$ 123,900.00
Net Operating Income				$     (5,000.00)