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In: Accounting

PROBLEM # 7 [ VARIANCE ANALYSIS ... The following is total monthly budgeted cost and activity...

PROBLEM # 7 [ VARIANCE ANALYSIS ...
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
Account inquiry
$75,936
$165,000
3,200 labor hours
Correspondence
$10,324
$21,000
2,900 letters
Account billing
$156,000
$76,000
2,600,000 lines
Bill verification
$10,105
$78,000
21,500 accounts

In September, actual costs and activity were as follows:

Activity Center
Total Costs
Driver Amount
Account inquiry
$236,390
3,030 labor hours
Correspondence
$31,409
2,880 letters
Account billing
$241,854
2,780,000 lines
Bill verification
$87,145
21,350 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):

Bill verification [__?__]

Account inquiry [__?__]

Solutions

Expert Solution

Calculation of variable cost per cost driver:

Activity center Variable Fixed Cost driver Variable cost p.u
Account Inquiry $75,936 $165,000 3,200 Labor hours $23.73
Correspondence $10,324 $21,000 2,900 letters $3.56
Account billing $156,000 $76,000 2,600,000 lines $0.06
Bill verification $10,105 $78,000 21,500 accounts $0.47

Flexible budget for actual units of cost driver:

Budgeted Variable cost p.u Cost driver Total Flexible VC
Account Inquiry $23.73 3,030 labor hours $71,902
Correspondence $3.56 2,880 letters $10,253
Account billing $0.06 2,780,000 lines $166,800
Bill verification $0.47 21,350 accounts $10,035

Variance:

Actual Total cost
(A)
Fixed Cost
(B)
Actual Variable cost (C)=(A)-(B) Flexible Variable cost Budget Variance
Account Inquiry $236,390 $165,000 $71,390 $71,902 $512
Correspondence $31,409 $21,000 $10,409 $10,253 ($156)
Account billing $241,854 $76,000 $165,854 $166,800 $946
Bill verification $87,145 $78,000 $9,145 $10,035 $890
$596,798 $340,000 $256,798 $258,989 $2,191

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