How do you figure out activity variance

Question

I would like to know how to figure out the activity variance for admimistrative expenses.

Answer 1

To calculate the Activity Variance for Administrative Expense:

(1) First determine the budget for Administrative Expense under the Planning Budget based on projected volume at the beginning of the period.

(2) Then, determine the Flexible Budget amount for Administrative Expense using the same formula you used in the Planning Budget. The Flexible Budget amount is prepared at the end of the period once the actual activity level is known.

(3) Then, compare the Flexible Budget amount for Administrative Expense with Planning Budget amount to determine your activity variance. If the Flexible Budget amount is higher than Planning Budget amount, then the activity variance is unfavorable and vice versa.

Answer 2

Hi Josephine,

 

The activity variance would be calculated with:

 

The Admin Expense using actual activity level and standard rate

 

minus

 

The budgeted Admin Expense (the static Budget)