Holiday Company prepares packed lunches for hikers in Yosemite.Hikers order their lunches by 10 pm and their lunch is left at their hotel room door in a re-useable insulated bag by 5 am the following morning.Holiday budgeted 5,000 lunches for July and each lunch requires 0.50 process hours.Holiday's static budget for electricity for the month is $3,000.Actual sales, process hours, and electricity cost totaled 5,100 lunches, 2,480 PH, and $3,040, respectively.If the company used a static budget for performance evaluations, Holiday would report a cost variance of:

Question

Quizplus · Accepted Answer

To calculate the cost variance, we need to compare actual costs with static budget costs. The static budget cost for 5,000 lunches would have been (0.50 PH/lunch x $10 PH rate =) $5/lunch x 5,000 lunches = $25,000. The static budget cost for electricity would have been $3,000. Therefore, the total static budget cost would have been $28,000.

However, the actual cost for 5,100 lunches would have been (0.50 PH/lunch x $10 PH rate =) $5/lunch x 5,100 lunches = $25,500. The actual cost for electricity was $3,040. Therefore, the total actual cost was $28,540.

To calculate the cost variance, we subtract the static budget cost from the actual cost:

$28,540 - $28,000 = $540

Since the actual cost is higher than the static budget cost, the variance is unfavorable, or "F". The amount of the variance is $540. However, since the question is asking for the cost variance for lunches only, we need to subtract the static budget cost for electricity from the actual cost for electricity:

$3,040 - $3,000 = $40

Therefore, the cost variance for lunches only is $540 - $40 = $500 or $40U (unfavorable). The correct choice is C.

Holiday Company Prepares Packed Lunches for Hikers in Yosemite