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Rudick 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. Fixed Element per Month Variable Element per Well Serviced Revenue $ 4,500 Employee salaries and wages $ 47,400 $ 1,200 Servicing materials $ 700 Other expenses $ 29,500 When the company prepared its planning budget at the beginning of July, it assumed that 34 wells would have been serviced. However, 36 wells were actually serviced during July. The activity variance for revenue for July would have been closest to:

Answer :

Answer:

$9,000 F

Explanation:

We have been provided Revenue for $4,500/well serviced. While the Well serviced is 36 and for planned well serviced is 34. We therefore, calculate and differentiate between the total revenue with the planned revenue in order to determine the activity variance for revenue for July. As shown below:

Activity Variance for Revenue = (4,500 x 36) - (4,500 x 34)

Activity Variance for Revenue = 162,000 - 153,000

Activity Variance for Revenue = $9,000 F

Hence, as the Revenue is more than the planned revenue, therefore, the activity variance for revenue is Favorable by $9,000.

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