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
Account inquiry	$82,926	$167,000	3,400 labor hours
Correspondence	$9,396	$25,000	2,700 letters
Account billing	$147,000	$88,000	2,450,000 lines
Bill verification	$11,890	$77,000	20,500 accounts

In September, actual costs and activity were as follows:

Activity Center	Total Costs	Driver Amount
Account inquiry	$252,913	3,540 labor hours
Correspondence	$34,868	2,630 letters
Account billing	$226,812	2,330,000 lines
Bill verification	$88,468	20,470 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: _________

Answer 1

Answer

1.Calculation of variance of Bill verification:

Bill verification :
Flexible = 77000 + $11,890/20500*20470 =$88873

Actual =$88,468

variances =$88873-$88468

=$405Favourable

2. Calculation of variance of Account inquiry.

Fixed cost = $167,000

Standard variable cost = $82,926 / 3,400 = $24.39 per Labor hour.

Actual cost as per standard rate = 3,540 x $24.39 = $86341

Fixed cost                                                          = $167,000

Total cost                                                           = $253,341

Actual cost Inccured                                          = $252,913

Variance                                                           = ($428) Unfavorable