Pippen Company’s activity-based performance report revealed that actual inspec
ID: 2371966 • Letter: P
Question
Pippen Company’s activity-based performance report revealed that actual inspection costs totaled £50,000 at an actual activity level of 50 inspections. Further analysis of inspection costs revealed the following:
Actual Cost
Budgeted Cost
Inspection costs:
Fixed
£30,000
£28,500
Variable
20,000
17,500
Fixed inspection costs consist of the salaries of the two inspectors, who are paid £14,250. Each inspector is capable of efficiently conducting inspections of 30 batches.
Variable inspection costs consist of materials used during the inspections.
The volume variance is
£2,500 U.
£2,500 F.
£4,750 U.
£4,750 F.
Actual Cost
Budgeted Cost
Inspection costs:
Fixed
£30,000
£28,500
Variable
20,000
17,500
Explanation / Answer
Fixed overhead rate using actual amounts = 30000/50 = 600 per inspection Fixed overhead rate using budgeted amounts = 28500/50 = 570 per ispection. Fixed overhead spending varience = 30000 - 28500 = 1500 unfavourable fixed overhead rate using budgeted costs, and factory capacity as the denominator-level concept = 28500/60 = 475 per inspection. Volume Varience = 475 * 50 - 28500 = 4750 Unfavourable. Anwer is