Question

The following is total monthly budgeted cost and activity information for the four activity centers in the billing department of Oregon Power Company:

Activity Center	Variable	Fixed	Cost Driver
Statement inquiry	$73,888	$166,000	3,200 labor hours
Correspondence	$9,604	$27,000	2,800 letters
Account billing	$130,000	$70,000	2,600,000 lines
Payment verification	$11,825	$77,000	21,500 accounts

In September, actual total costs and activity were as follows:

Activity Center	Total Costs	Driver Amount
Statement inquiry	$241,803	3,240 labor hours
Correspondence	$36,377	2,660 letters
Account billing	$208,633	2,760,000 lines
Payment verification	$89,764	21,400 accounts

Required
Compute the flexible-budget variances for the following two activity cost items (round all answers to the nearest dollar and enter favorable variances as positive numbers and unfavorable variances as negative numbers):

Account Billing is....?

Answer 1

flexible budget is the budgeted costs for actual output. Fixed costs are constant and remains ame as planned. while variable costs will change as per actual activity.

we will frist find variable cost planned per activity

	variable	cost driver s	cost per activity
statement inquiry	$73,888	3200 labor hours	$23.09($73,888/3200)
correspondence	$9,604	2,800 letters	$3.43 per letter($9,604/2800)
account billing	$130,000	2,600,000 lines	$0.05 per line($130,000/2,600,000)
payment verification	$11,825	21,500 accounts	$0.55 per account($11,825/21,500)

Now we will find flexible costs

	cost per activity	Total variable costs	fixed costs	Total flexible costs [ variable costs+fixed costs]
statement inquiry	$23.09($73,888/3200)	$74,811.6($23.09*3240 labor hours)	$166,000	$240,812($74,811.6+$166,000)
correspondence	$3.43 per letter($9,604/2800)	$9123.8($3.43*2,660 letter)	$27,000	$36,124($9123.8+$27,000)
account billing	$0.05 per line($130,000/2,600,000)	$138,000($0.05*2,760,000 lines)	$70,000	$208,000($138,000+$70,000)
payment verification	$0.55 per account($11,825/21,500)	$11,770($0.55*21,400 accounts)	$77,000	$88,770($11,770+77,000)

we will now calculate variances

	flexible costs	Actual costs	Variances [flexible costs-actual costs] ANSWER
statement inquiry	$240,812($74,811.6+$166,000)	$241,803	-$991[$240,812-$241,803)
correspondence	$36,124 ($9123.8+$27,000)	$36,377	-$253[$36,124-$36,377]
account billing	$208,000($138,000+$70,000)	$208,633	-$633 [$208,000-$208,633]
payment verification	$88,770($11,770+77,000)	$89,764	-$994[$88,770-$89,764]

if actual costs are higher than flexible costs than variance is unfavorable.