D 558610 14 Harold Corporation manufactures and sells a sing

D) $558,610 14) Harold Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During March, the company budgeted for 7,900 units, but its actual level of activity was 7,860 units. The company has provided the following data conceming the formulas used in its budgeting and its actual results for March: Data used in budgeting: Fixed element Variable element per month perumt , Revenue 39.80 Direct labor Direct materials Manufacturing overhead Selling and administrative expenses Total expenses 0 38.200 27,400 S 65,600 7.70 18.00 1.50 0.50 Actual results for March: Revenue Direct labor Direct materials Manufacturing overhend Selling and administrative expenses 297,318 9,962 35,850 51,370 31.9 The activity variance for selling and administrative expenses in March would be closest to: A) S600 F B) $600 U C) $20 F D) $20 U

Solution

Activity Variance of selling and administrative expenses is the difference between selling and administrative expense in the static planning budget and the same in the flexible budget. Budgeted level of activity=7,900 units

Budgeted Selling and administration expense:

Variable expense=0.5*7900=$3,950

Fixed expense=$27,400

Total Budgeted selling and administration expenses=(3950+27400)=$31,350

Actual level of activity=7860 units

Flexible budget for Selling and administration expenses:

Variable expense=0.5*7860=$3,930

Fixed expense=$27,400

Total Flexible budget of Selling and administration cost=(3930+27400)=$31,330

Activity variance=(31350-31330)=$20U(since actual performance was worse than budgeted)

Activity Variance is due solely to the difference between the level of activity in the budget and the actual level of activity.

Difference in level of activity=(7900-7860)=40 units

Variable rate =$0.5 per unit

Activity variance=0.5*40=$20

Fixed expense will not change with level of activity.

Answer:

D) $20 U