Kirnon Catering uses two measures of activity, jobs and meals, in the cost formulas in its budgets and performance reports. The cost formula for catering supplies is $300 per month plus $114 per job plus $16 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in October to be 27 jobs and 224 meals, but the actual activity was 29 jobs and 227 meals. The actual cost for catering supplies in October was $7,500. The activity variance for catering supplies in October would be closest to:

A) $276 F
B) $276 U
C) $538 U
D) $538 F

Question

Shereen Batool · Accepted Answer

Final Answer : B, Explanation :  The activity variance for catering supplies is calculated by comparing the flexible budget (based on actual activity) to the actual costs. The flexible budget for catering supplies is calculated as follows: $300 (fixed cost) + $114 per job * 29 jobs + $16 per meal * 227 meals = $300 + $3,306 + $3,632 = $7,238. The actual cost was $7,500. Therefore, the activity variance is $7,500 - $7,238 = $262 U, indicating an unfavorable variance. However, since none of the provided options exactly match this calculation, the closest provided option to the calculated variance of $262 is $276 U.

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