Question

Jake's Roof Repair has provided the following data concerning its costs: Fixed Cost per Month $ 21,300 Wages and salaries Parts and supplies Equipment depreciation Truck operating expenses Rent Administrative expenses Cost per Repair-Hour $ 15.00 $ 7.20 $ 0.50 $ 1.70 $ $ $ $ 2,730 5,760 4,620 3,840 $ 0.80 For example, wages and salaries should be $21,300 plus $15.00 per repair-hour. The company expected to work 2,500 repair-hours in May, but actually worked 2,400 repair-hours. The company expects its sales to be $46.00 per repair-hour. Required: Compute the company's activity variances for May. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) Jake's Roof Repair Activity Variances For the Month Ended May 31 Revenue Expenses: Wages and salaries Parts and supplies Equipment depreciation Truck operating expenses Rent Administrative expenses Total expense Net operating income

Answer 1

Jake's Roof Repair
Activity Variances [Refer working note 1]
For the Month Ended May 31
Revenue	$4,600	U
Expenses:
Wages and salaries	$1,500	F
Parts and Supplies	$720	F
Equipment depreciation	$50	F
Truck operating expenses	$170	F
Rent	$0	None
Administration expenses	$80	F
Total Expenses	$2,520	F
Net Operating Income	$2,080	U

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Working note 1 - Activity Variance
	Planning Budget [Refer working note 1]	Flexible Budget [Refer working note 2]	Activity Variance [Planning budget - Flexible budget]
Revenue	$115,000	$110,400	$4,600
Expenses:
Wages and salaries	$58,800	$57,300	$1,500
Parts and Supplies	$18,000	$17,280	$720
Equipment depreciation	$3,980	$3,930	$50
Truck operating expenses	$10,010	$9,840	$170
Rent	$4,620	$4,620	$0
Administration expenses	$5,840	$5,760	$80
Total Expenses	$101,250	$98,730	$2,520
Net Operating Income	$13,750	$11,670	$2,080

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Working note 2 - Planning budget
Revenue                                          [Expected hours x Selling price = 2,500 hours x $46 ]	$115,000
Expenses:
Wages and salaries                     [Fixed cost + Variable cost = [$21,300 + ($2,500 hours x $15)]	$58,800
Parts and Supplies                      [Variable cost = 2,500 hours x $7.20)]	$18,000
Equipment depreciation              [Fixed cost + Variable cost = [$2,730 + ($2,500 hours x $0.50)]	$3,980
Truck operating expenses           [Fixed cost + Variable cost = [$5,760 + ($2,500 hours x $1.70)]	$10,010
Rent                                            [Fixed cost]	$4,620
Administration expenses            [Fixed cost + Variable cost = [$3,840 + ($2,500 hours x $0.80)]	$5,840
Total expenses	$101,250
Net operating income                        [Revenue - Total expenses = $115,000 - $101,250]	$13,750

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Working note 3 - Flexible budget
Revenue                                          [Actual hours x Selling price = 2,400 hours x $46 ]	$110,400
Expenses:
Wages and salaries                     [Fixed cost + Variable cost = [$21,300 + ($2,400 hours x $15)]	$57,300
Parts and Supplies                      [Variable cost = 2,400 hours x $7.20)]	$17,280
Equipment depreciation              [Fixed cost + Variable cost = [$2,730 + ($2,400 hours x $0.50)]	$3,930
Truck operating expenses           [Fixed cost + Variable cost = [$5,760 + ($2,400 hours x $1.70)]	$9,840
Rent                                            [Fixed cost]	$4,620
Administration expenses            [Fixed cost + Variable cost = [$3,840 + ($2,400 hours x $0.80)]	$5,760
Total expenses	$98,730
Net operating income                        [Revenue - Total expenses = $110,400 - $98,730]	$11,670

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Note

1. A revenue variance is said to favorable, when revenue as per flexible budget is more than the revenue as per the planning budget

2. A revenue variance is said to Unfavorable, when revenue as per flexible budget is less than the revenue as per the planning budget

3. A expense variance is said to favorable, when expense as per flexible budget is less than the expense as per the planning budget

4. A expense variance is said to Unfavorable, when expense as per flexible budget is more than the expense as per the planning budget