Question

Petrus Framing's cost formula for its supplies cost is $1,930 per month plus $12 per frame. For the month of March, the company planned for activity of 633 frames, but the actual level of activity was 641 frames. The actual supplies cost for the month was $9,940. The activity variance for supplies cost in March would be closest to: Multiple Choice $414 U $96 U $414 F $96 F

Answer 1

Answer: $96 U

Step-by-step explanation:

Variance is used to calculate the difference between the amount that a company budgets to spend on an activity vs how much it actually spends.

When it spends more than it budgeted, it is said to be UNFAVOURABLE. When it spends less than the budget, it is said to be FAVOURABLE.

In the above, the company budgets $1,930 per month plus $12 per frame and planned 633 frames.

Which means the budget was,

= 1,930 + (12 *633)

= 1,930 + 7,596

= $9,526

The Flexible Budget or what it spent was for 641 frames which would be,

= 1,930 + (12 *641)

= 1,930 + 7,692

= $9,622

The difference therefore is,

= 9,622 - 9,526

= $96

Because the actual level exceeds the planned level, it is UNFAVOURABLE.