Question

Jake’s Roof Repair has provided the following data concerning its costs: Fixed Cost per Month Cost per Repair-Hour Wages and salaries $ 21,400 $ 15.00 Parts and supplies $ 7.80 Equipment depreciation $ 2,780 $ 0.55 Truck operating expenses $ 5,720 $ 1.70 Rent $ 4,650 Administrative expenses $ 3,860 $ 0.40 For example, wages and salaries should be $21,400 plus $15.00 per repair-hour. The company expected to work 3,000 repair-hours in May, but actually worked 2,900 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.)

Answer 1

• All working forms part of the answer
• Activity Variance = Difference between Static Budget and Flexible Budget for actual output.

= Static Budget for 3000 repair hours and Flexible Budget for 2900 hours

• Requirement

	Flexible Budget	Activity Variances		Planning/Static Budget
Repair Hours	2,900	Requirement 1		3,000
Revenue	$        139,200.00	$            4,800.00	Unfavourable	$      144,000.00
Expenses
Wages & Salaries	$          64,900.00	$            1,500.00	Favourable	$        66,400.00
Parts & Supplies	$          22,620.00	$               780.00	Favourable	$        23,400.00
Equipment depreciation	$             4,375.00	$                  55.00	Favourable	$           4,430.00
Truck Operating Expenses	10650	$               170.00	Favourable	10820
Rent	4650	$                        -	None	4650
Administrative expenses	5020	$                  40.00	Favourable	5060
Total Expenses	$        112,215.00	$            2,545.00	Favourable	$      114,760.00
Net Operating Income	$          26,985.00	$            2,255.00	Unfavourable	$        29,240.00

• Working for above

	Flexible Budget	Planning/Static Budget
Repair Hours	2900	3000
Revenue	=2900 repair hours x $ 48	=3000 repair hours x $ 48
Expenses
Wages & Salaries	=21400+(2900 repair hours x $ 15)	=21400+(3000 repair hours x $ 15)
Parts & Supplies	=2900 repair hours x $ 7.8	=3000 repair hours x $ 7.8
Equipment depreciation	=2780+(2900 repair hours x $ 0.55)	=2780+(3000 repair hours x $ 0.55)
Truck Operating Expenses	=5720+(2900 repair hours x $ 1.7)	=5720+(3000 repair hours x $ 1.7)
Rent	4650	4650
Administrative expenses	=3860+(2900 repair hours x $ 0.4)	=3860+(3000 repair hours x $ 0.4)