Question

Use the following data for questions 17 and 19:

Roye Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During September, the kennel budgeted for 3,300 tenant-days, but its actual level of activity was 3,330 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for September:
Static budget for September: (Fixed element per month = FE, Variable element per tenant-day = VE)
Revenue: FE = - VE = $34.70
Wages and salaries: FE = $2,600 VE = $7.70
Expendables: FE = $1,400 VE = $14.50
Facility expenses: FE = $8,200 VE = $3.30
Administrative expenses: FE = $6,700 VE = $0.20
Total expenses: FE = $18,900 VE = $25.70
---------------------------------------------------------------------------
Actual results for September:
Revenue: $112,721
Wages and salaries: $28,691
Expendables: $50,435
Facility expenses: $18,899
Administrative expenses: $7,096

The price variance for expendables in September would be closest to:
A. $1,185 F
B. $1,185 U
C. $750 F
D. $750 U

Answer 1

The price variance for expendables in September is the difference between the actual cost incurred and the standard cost. The actual cost for expendables was $50,435, and the standard cost was $48,285, resulting in an unfavorable variance of $2,150.

Step-by-step explanation:

To calculate the price variance for expendables in September, we need to compare the standard cost to the actual cost incurred. The standard cost is calculated by multiplying the budgeted variable cost per tenant-day with the actual number of tenant-days. The formula would be Standard Cost = Variable element per tenant-day (VE) × Actual tenant-days.

For expendables, the VE is $14.50 per tenant-day. Since the actual level of activity was 3,330 tenant-days, the standard cost for expendables would be $14.50 × 3,330.

Standard Cost = $14.50 × 3,330 = $48,285

Next, we compare the standard cost to the actual cost incurred for expendables, which was $50,435.

Price Variance = Actual Cost - Standard Cost

Price Variance = $50,435 - $48,285

Price Variance = $2,150

Since the actual cost is higher than the standard cost, this is an unfavorable variance (U). Hence, the correct answer is not provided in the options, but if we were to choose the closest, it would be:

$2,150 U