Question

Exercise 9-8 Flexible Budgets and Activity Variances [LO9-1, LO9-2]

Jake’s Roof Repair has provided the following data concerning its costs:

	Fixed Cost per Month			Cost per Repair-Hour
Wages and salaries	$	20,800		$	15.00
Parts and supplies				$	7.40
Equipment depreciation	$	2,720		$	0.55
Truck operating expenses	$	5,730		$	1.60
Rent	$	4,680
Administrative expenses	$	3,870		$	0.80

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 $50.00 per repair-hour.

Required:

Compute the company’s activity variances for May. (Indicate the effect of each variance with "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance)
Jake's Roof Repair Activity Variances For the Month Ended May 31 Revenue Expenses: Wages and salaries Parts and supplies Equipment depreciation Truck operating expenses Rent Administrative expenses Total expense Net operating income

Answer 1

Compute activity variance :

Revenue	5000	U
Expense:
Wages and salaries	1500	F
Parts and supplies	740	F
Equipment depreciation	55	F
Truck operating expense	160	F
Rent	0	None
Administrative expenses	80	F
Total expense	2535	F
Net operating income	2465	U