Question

Piechocki Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During May, the company budgeted for 7,800 units, but its actual level of activity was 7,750 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for May:

Data used in budgeting:

	Fixed element per month			Variable element per unit
Revenue		-		$	35.30
Direct labor	$	0		$	5.90
Direct materials		0			12.90
Manufacturing overhead		35,000			1.60
Selling and administrative expenses		26,600			0.60
Total expenses	$	61,600		$	21.00

Actual results for May:

Revenue	$	274,800
Direct labor	$	45,800
Direct materials	$	101,100
Manufacturing overhead	$	49,000
Selling and administrative expenses	$	30,580

The activity variance for direct labor in May would be closest to:

Answer 1

Calculation of activity variance for direct labor in may would be: -

= Planned Budget - Flexible Budget

= 7800*5.9 - 7750*5.9

= 46020 - 45725

= $295 F