Asked by Martha Renteria on Jul 27, 2024
Verified
Petrus Framing's cost formula for its supplies cost is $1,730 per month plus $11 per frame. For the month of March, the company planned for activity of 613 frames, but the actual level of activity was 618 frames. The actual supplies cost for the month was $8,670. The activity variance for supplies cost in March would be closest to:
A) $197 U
B) $197 F
C) $55 U
D) $55 F
Supplies Cost
The total expense incurred from acquiring supplies necessary for the operation of a business, including office, cleaning, and manufacturing supplies.
Activity Variance
The difference between the budgeted amount of an activity and its actual cost or output.
Cost Formula
An equation used to calculate the total cost of producing goods or services by accounting for both fixed and variable costs.
- Review the differences highlighted in flexible budgets, including expenditure and activity variances.
- Evaluate the repercussions of operational level alterations on planned versus actual expenditures.
Verified Answer
$1,730 + ($11 per frame x 618 frames) = $8,568
Next, we can calculate the activity variance:
Actual supplies cost - Flexible budget for supplies cost
$8,670 - $8,568 = $102 F
However, the question asks for the variance per frame (not the total variance), so we need to divide the activity variance by the actual level of activity:
$102 ÷ 618 = $0.165
This is a favorable variance (because actual supplies cost is less than the flexible budget), so we express it as a credit or U:
$0.165 x - 618 frames = -$102.17, which we round to the nearest dollar as $55 U (under applied). Therefore, the closest answer option is C.
Learning Objectives
- Review the differences highlighted in flexible budgets, including expenditure and activity variances.
- Evaluate the repercussions of operational level alterations on planned versus actual expenditures.
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