Exercise 98 Flexible Budgets and Activity Variances LO91 LO9

Exercise 9-8 Flexible Budgets and Activity Variances [LO9-1, LO9-2] Jake\'s Roof Repair has provided the following data concerning its costs Fixed Cost Cost per per Month Repair-Hour Wages and salaries Parts and supplies Equipment depreciation Truck operating expenses Rent Administrative expenses $15.00 $ 7.50 $ 0.40 $ 1.70 $21,000 $ 2,750 $ 5,780 $ 4,630 $ 3,810 $ 0.60 For example, wages and salaries should be $21,000 plus $15.00 per repair-hour. The company expected to work 2,900 repair-hours in May, but actually worked 2,800 repair-hours. The company expects its sales to be $47.00 per repair-hour. Required: Compute the company\'s activity variances for May. (Indicate the effect of each variance by selecting \"F\" for favorable, \"U\" for unfavorable, and \"None\" for no effect (i.e., zero variance). Input all amounts as positive values.) Jake\'s Roof Repair Activity Variances For the Month Ended May 31 Revenue Expenses Wages and salaries Parts and supplies Equipment depreciation Truck operating expenses Rent Administrative expenses Total expense Net operating income

Solution

Jakes roof repair

activity variances

for the month ended may 31

10,540

23,070

	flexible budget 2800 repair hours	planning budget 2900 repair hours	Activity variances
Revenue (2800*47) (2900*47)	131,600	136,300	4,700 U
expenses:
wages and saleries (21,000 + 15*2800) (21,000+ 2900*15)	63,000	64,500	1,500 F
jparts and supplies (7.50*2800) (7.50*2900)	21,000	21,750	750F
equipment depreciation (2750+0.40*2800) (2750+0.40*2900)	3,870	3,910	40F
rent (fixed for both)	4,630	4,630	none
truck operating expenses (5780+1.70*2800)	10,540	10,710	170F
administrative expenses (3810+0.60*2800) (3810+0.60*29000)	5,490	5,550	60F
Total expense	108,530	111,050	$2,520F
net operating income	23,070	25.250	2,180U