The activity variance for net operating income in October would be:
A) $38,200 F
B) $33,815 F
C) $38,200 U
D) $33,815 U

Question

Quizplus · Accepted Answer

The activity variance is the difference between the actual results and the flexible budget based on actual activity levels.

Flexible budget for 10,000 units: 
Revenue = ($5.50 x 10,000) = $55,000 
Variable costs = ($1.20 x 10,000) + ($0.45 x 10,000) = $16,500 
Fixed costs = $30,000 
Total costs = $46,500 
Net operating income = $8,500

Actual results for 12,000 units: 
Revenue = ($5.40 x 12,000) = $64,800 
Variable costs = ($1.15 x 12,000) + ($0.50 x 12,000) = $16,800 
Fixed costs = $30,000 
Total costs = $46,800 
Net operating income = $18,000

Flexible budget for 12,000 units: 
Revenue = ($5.50 x 12,000) = $66,000 
Variable costs = ($1.20 x 12,000) + ($0.45 x 12,000) = $19,800 
Fixed costs = $30,000 
Total costs = $49,800 
Net operating income = $16,200

The activity variance for net operating income is: 
Actual net operating income - Flexible budget net operating income 
= $18,000 - $16,200 
= $1,800 U

Therefore, the best choice is C.

The Activity Variance for Net Operating Income in October Would