Question

1.Peterson LLC is an accounting firm that measures its output by the number of clients served. The firm has provided the following fixed and variable cost estimates that it uses for its budgets.

                                                                                                                   Variable
                                                                        Fixed Element                Element per
                                                                            per Month                   Client Served

     Revenue                                                                                              $ 5,600
     Employee salaries and wages       $ 47,800 $ 1,200
     Travel expenses                                                                                $    600
     Other expenses                                    $ 29,700

When the company prepared its planning (static) budget at the beginning of March, it assumed that 28 customers would have been served. However, 25 customers were actually served during March.

The activity variance for "Employee salaries & wages" for March would have been:

A.$1,800 U

B.$3,600 U

C.$1,800 F

D. $3,600 F

2. Netjets Charter owns one Gulfstream G450. It uses two measures of activity, flights and passengers, in the cost formulas for its budgets . The cost formula for the plane's operating costs is $79,180 per month, plus $5,298 per flight, plus $8 per passenger. The company expected its activity in February to be 92 flights and 304 passengers, but the actual activity was 95 flights and 307 passengers. The actual operating costs for the plane in February was $562,375.

For the February operating costs, the spending variance would be:

Group of answer choices

a.$6,653 F

b. $6,653 U

c. $22,571 U

d. $22,571 F

3.Flint, Inc.’s material handling costs and pounds of materials handled for January & February appear below:

Materials Handled

• January - 80,000 pounds
• February - 60,000 pounds

Handling Costs

• January - $160,000
• February - $132,000

What is the best estimate of materials handling costs for 75,000 pounds?

a.$150,000

b.$153,000

c.$157,500

d. $165,000

Answer 1

Answer-1)- The activity variance for "Employee salaries & wages" for March would have been is = $3600 F.

Explanation-Activity variance for "Employee salaries & wages" for March = Planning budget- Flexible budget

= {($1200 per client served*28 client served)+$47800} - {($1200 per client served*25 client served)+$47800}

= $81400-$77800

= $3600 Favorable

Answer-2)- For the February operating costs, the spending variance would be =$22571 F.

Explanation-The spending variance for operating costs = Flexible budget- Actual costs

= {(95 flights*$5298 per flight)+(307 passengers*$8 per passenger)+$79180}- $562375

= $584946 - $562375

= $22571 Favorable

Answer-3)- The best estimate of materials handling costs for 75,000 pounds is =$153000.

Explanation:-High-Low Method:-

Variable Cost per Unit

Variable cost per unit (b) is calculated using the following formula:

Variable cost per unit = (Y2-Y1)/(X2-X1)

Where,
y2 is the total cost at highest level of activity;
y1 is the total cost at lowest level of activity;
x2 are the number of units/miles/ labor ,machine hours etc. at highest level of activity; and
x1 are the number of units/miles/ labor, machine hours etc. at lowest level of activity

The variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of machine hours).

Total Fixed Cost

Total fixed cost (a) is calculated by subtracting total variable cost from total cost, thus:

Total Fixed Cost = (y2 – b)*x2 = (y1 – b*x1)

We have,
at highest activity: x2 = 80000 pounds; y2 = $160000
at lowest activity: x1 = 60000 pounds; y1 = $132000

Variable Cost per pound = ($160000-$132000) /(80000 pounds −60000 pounds)  

= $28000/20000 pounds

= $1.4 per pound

Fixed costs = $160000- ($1.4 per pound*80000 pounds)

= $160000-$112000

= $48000

Materials handling costs for 75000 pounds = (75000 pounds*$1.4 per pound)+$48000

= $105000+$48000

= $153000