Question

Rudolph Corporation is an oil well service company that measures its output by the number of wells
serviced. The company has provided the following fixed and variable cost estimates that it uses for
budgeting purposes.
Fixed Element per Month
Variable Element per Well Serviced
Revenue
$
4,500
Employee salaries and wages
$
47,400
$
1,200
Servicing materials
$
700
Other expenses
$
29,500
When the company prepared its planning budget at the beginning of July, it assumed that 34 wells
would have been serviced. However, 36 wells were actually serviced during July. The activity
variance for revenue for July would have been:
a. $10,800 U.
b. $9,000 F.
c. $9,000 U.
d. $10,800 F.

Answer 1

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Correct option is: b. $9,000 F
Workings:
Activity Variance
For the month ended March 31
		Budgeted Budget	Flexible Budget	Activity Variances
Wells	(q)	34	36
Revenue	($4500 X q)	$ 1,53,000	$   1,62,000	$      9,000	F
Employee's salaries and wages	[$47400 + ($1200 X q)]	$     88,200	$       90,600	$      2,400	U
Servicing materials	($700 X q)	$     23,800	$       25,200	$      1,400	U
Other expenses	$                             29,500	$     29,500	$       29,500	$             -	None
Net Operating Income (loss)		$     11,500	$       16,700	$      5,200	F