Question

Pratte Boat Wash's cost formula for its cleaning equipment and supplies is $2,500 per month plus $48 per boat. For the month of April, the company planned for activity of 55 boats, but the actual level of activity was 13 boats. The actual cleaning equipment and supplies for the month was $3,250. The activity variance for cleaning equipment and supplies in April would be closest to: Multiple Choice $2,016 F $1,890 U

Answer 1

Answer: $2,016

Explanation:

Spending variance is known as the difference between the actual and budgeted amount of a project or good.

When the actual amount exceeds the budgeted amount then the variance is known as UNFAVOURABLE. When it is below the budgeted amount it is FAVOURABLE.

Now, the Actual activity on cleaning equipment and supplies in April was 13 boats.

The Budgeted Activity was 55 boats will be calculated thus,

To calculate the variance therefore, we subtract the cost of making the budgeted activity from the actual one.

Activity Variance = (2,500 + ( 13 boats * 48)) - (2,500 + ( 55 boats * 48 ))

= 3,124 - 5,140

= $2,016

Because the budgeted activity was higher than the actual one, it is FAVOURABLE. Hence the Activity Budget for April was $2,016 Favourable.