Question

Shelby Boat Wash's cost formula for its cleaning equipment and supplies is $2,780 per month plus $21 per boat. For the month of September, the company planned for activity of 47 boats, but the actual level of activity was 16 boats. The actual cleaning equipment and supplies for the month was $3,157. The activity variance for cleaning equipment and supplies in September would be closest to: ____

Answer 1

Answer:

Hence, The activity variance for cleaning equipment and supplies in September would be closest to $651 favorable.

Explanation:

For computing the activity variance, first we need to calculate the planned budget and actual budget.

The planned budget = Monthly expense + planned activity × rate per boat

                                  = $2,780 + 47 ×$21

                                  = $2,780 +$987

                                  = $3,767

The actual budget = Monthly expense + actual activity × rate per boat

                               = $2,780 + 16 ×$21

                               = $2,780 +$336

                               = $3,116

So, the activity variance is equals to

= Flexible budget - actual budget

= $3,767  - $3,116

= $651 favorable

The actual cleaning equipment expenses should not be considered. So, it would not be taken in the computation part.

Hence, The activity variance for cleaning equipment and supplies in September would be closest to $651 favorable.