Question

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Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:

	Fixed Element per Month		Variable Element per Customer Served			Actual Total for May
Revenue			$	5,600		$	182,000
Employee salaries and wages	$	55,000	$	1,600		$	110,300
Travel expenses			$	850		$	27,200
Other expenses	$	34,000				$	32,600

When preparing its planning budget the company estimated that it would serve 30 customers per month; however, during May the company actually served 35 customers.

Required:

13. What amount of other expenses would be included in Adger’s planning budget for May?

14. What activity variance would Adger report in May with respect to its revenue? (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.)

15. What activity variances would Adger report with respect to each of its expenses 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

13
Other expenses	34000
14
Flexible budget	Activity variance		Planning budget
196000	28000	F	168000
15
	Flexible budget	Planning budget	Activity variance
Employee salaries and wages	111000	103000	8000	U
Travel expenses	29750	25500	4250	U
Other expenses	34000	34000	0	None
Workings:
Revenue:
Flexible budget	196000	=35*5600
Planning budget	168000	=30*5600
Expenses:	Flexible budget	Planning budget
Employee salaries and wages	=55000+(1600*35)	=55000+(1600*30)
Travel expenses	=850*35	=850*30