Stegemann Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for May. When the company prepared its planning budget at the beginning of May, it assumed that 27 containers would have been refurbished. However, 29 containers were actually refurbished during May.The activity variance for total expenses for May would have been closest to:
A) $3,600 Favorable
B) $3,600 Unfavorable
C) $4,900 Unfavorable
D) $4,900 Favorable

Question

Stegemann Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for May.  When the company prepared its planning budget at the beginning of May, it assumed that 27 containers would have been refurbished. However, 29 containers were actually refurbished during May.The activity variance for total expenses for May would have been closest to:
A) $3,600 Favorable 
B) $3,600 Unfavorable 
C) $4,900 Unfavorable 
D) $4,900 Favorable

Quizplus · Accepted Answer

The activity variance for total expenses is calculated as the difference between the actual total expenses and the budgeted total expenses, based on the actual activity level achieved.

Actual total expenses = $86,000
Budgeted total expenses (based on 27 containers) = $82,400
Budgeted total expenses (based on 29 containers) = $84,000
Activity variance = Actual total expenses - Budgeted total expenses (based on actual activity level)

Activity variance = $86,000 - $84,000 = $2,000

Since the actual activity level was higher than the budgeted activity level, we would expect the activity variance to be unfavorable. However, we need to compare the budgeted total expenses based on actual activity level (i.e. $84,000) to the actual total expenses to determine the exact amount of the variance.

Activity variance = Actual total expenses - Budgeted total expenses (based on actual activity level)
Activity variance = $86,000 - $84,000 = $2,000

Therefore, the activity variance for total expenses for May is $2,000 unfavorable. However, the closest option provided is $3,600 unfavorable, which is the best choice.

Stegemann Corporation Is a Shipping Container Refurbishment Company That Measures