Lochner Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for June. Fixed Element per Month Variable Element per Well Serviced Actual Total for June Revenue $ 5,600 $ 148,000 Employee salaries and wages $ 40,600 $ 1,200 $ 73,700 Servicing materials $ 500 $ 13,600 Other expenses $ 42,800 $ 43,300 When the company prepared its planning budget at the beginning of June, it assumed that 24 wells would have been serviced. However, 26 wells were actually serviced during June. The activity variance for revenue for June would have been closest to: $13,600 U $11,200 U $13,600 F $11,200 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.
Lochner Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for June.
| Fixed Element per Month | Variable Element per Well Serviced | Actual Total for June | |
|---|---|---|---|
| Revenue | $ 5,600 | $ 148,000 | |
| Employee salaries and wages | $ 40,600 | $ 1,200 | $ 73,700 |
| Servicing materials | $ 500 | $ 13,600 | |
| Other expenses | $ 42,800 | $ 43,300 |
When the company prepared its planning budget at the beginning of June, it assumed that 24 wells would have been serviced. However, 26 wells were actually serviced during June.
The activity variance for revenue for June would have been closest to:
|
$13,600 U
|
||
|
$11,200 U
|
||
|
$13,600 F
|
||
|
$11,200 F
|
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