Question

Pattison Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per Month Variable Element per Customer Served Revenue $5,500 Employee salaries and wages $46,300 $1,000 Travel expenses $ 500 Other expenses $32,500 When the company prepared its planning budget at the beginning of May, it assumed that 20 customers would have been served. However, 17 customers were actually served during May. The activity variance for "Travel expenses" for May would have been closest to:

Answer 1

Answer:

Pattison Corporation

Activity Variance for "Travel expenses" for May would have been closest to:

$1,500 Favorable

Explanation:

Data and Calculations:

                           Fixed Element         Variable Element per  

                              per Month              Customer Served

Revenue                                                        $5,500

Employee salaries

 and wages            $46,300                         $1,000

Travel expenses                                             $ 500

Other expenses    $32,500

The Travel Expenses Activity Variance = Actual cost minus budgeted cost

= $8,500 - $10,000

= $1,500 Favorable

Actual travel expenses = ($500 x 17)

= $8,500

Budgeted travel expenses =  ($500 x 20)

= $10,000

Pattison Corporation's activity variance for Travel Expenses for the month of May is the difference between the actual travel expenses and the budgeted travel expenses.  The budgeted expenses are based on budgeted number of customers served in May while the actual expenses are based on actual number of customers served in May.