Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity: • Four welding units, with a lease cost of $11,000 per year per unit • Six welding employees each paid a salary of $51,000 per year (A total of 12,000 welding hours are supplied by the six workers.) • Welding supplies: $400 per job • Welding hours: 4 hours used per job During the year, the activity operated at 85 percent of capacity and incurred the following actual activity and resource costs. • Lease cost: $44,000 • Salaries: $321,300 • Parts and supplies: $1,014,900 1. Prepare a performance report for the welding activity. In the last column of Foy Company Activity-Based Performance Report, if variance amount is unfavorable select "U" , select "F", if it is Favorable and select "NA" if there is no variance. Foy Company Activity-Based Performance Report Activity Actual Cost Budgeted Cost (85% level) Budget Variance Variance Welding: Fixed cost $365,300 $350,000 $fill in the blank U Variable cost $1,014,900 $1,020,000 $5,100 F
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Activity-Based Flexible Budgeting
Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity:
• Four welding units, with a lease cost of $11,000 per year per unit
• Six welding employees each paid a salary of $51,000 per year (A total of 12,000 welding hours are supplied by the six workers.)
• Welding supplies: $400 per job
• Welding hours: 4 hours used per job
During the year, the activity operated at 85 percent of capacity and incurred the following actual activity and resource costs.
• Lease cost: $44,000
• Salaries: $321,300
• Parts and supplies: $1,014,900
1. Prepare a performance report for the welding activity. In the last column of Foy Company Activity-Based Performance Report, if variance amount is unfavorable select "U" , select "F", if it is Favorable and select "NA" if there is no variance.
| Foy Company | ||||
| Activity-Based Performance Report | ||||
| Activity | Actual Cost | Budgeted Cost (85% level) | Variance | |
| Welding: | ||||
| Fixed cost | $365,300 | $350,000 | $fill in the blank | U |
| Variable cost | $1,014,900 | $1,020,000 | $5,100 | F |
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