Lochner 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 and the actual results of operations for June. When the company prepared its planning budget at the beginning of June, it assumed that 24 wells would have been serviced. However, 26 wells were actually serviced during June.The activity variance for revenue for June would have been closest to:

A) $13,600 U
B) $13,600 F
C) $11,200 F
D) $11,200 U

Question

Lochner 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 and the actual results of operations for June.

When the company prepared its planning budget at the beginning of June, it assumed that 24 wells would have been serviced. However, 26 wells were actually serviced during June.The activity variance for revenue for June would have been closest to:

A) $13,600 U
B) $13,600 F
C) $11,200 F
D) $11,200 U

Elizabeth Antony · Accepted Answer

Final Answer : C, Explanation :  To find the activity variance for revenue, we need to use the following formula:Activity Variance = (Actual Level of Activity - Budgeted Level of Activity) * Budgeted Unit Contribution MarginBudgeted Unit Contribution Margin = Selling Price - Variable Cost per Unit = $1,200 - $800 = $400Actual Level of Activity = 26Budgeted Level of Activity = 24Budgeted Unit Contribution Margin = $400Activity Variance for Revenue = (26 - 24) * $400 = $800 FTherefore, the closest option is C) $11,200 F.

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