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Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates for budgeting purposes and the actual results for May as shown below:

 Fixed Element per MonthVariable Element per Customer ServedActual Total for MayRevenue
 
$ 5,000

$ 160,000

Employee salaries and wages

$ 50,000

$ 1,100

$ 88,000

Travel expenses
 
$ 600

$ 19,000

Other expenses

$ 36,000
 
$ 34,500

When preparing its planning budget, the company estimated it would serve 30 customers per month; however, during May the company actually served 35 customers.

14. What activity variance would Adger report in May with respect to its revenue?

**Note: Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable**

To calculate the **activity variance** with respect to Adger Corporation's revenue, we compare the **budgeted revenue** based on the planned activity level (30 customers) to the **revenue that should have been expected** based on the actual activity level (35 customers).

### Step 1: Identify the revenue components.
- **Fixed revenue element**: $5,000
- **Variable revenue element per customer**: $160,000 ÷ 30 customers = $5,333.33 per customer

### Step 2: Calculate the expected revenue for both activity levels.
- **Budgeted revenue for 30 customers**:
  - Revenue = $5,000 (fixed) + ($5,333.33 × 30 customers)
  - Revenue = $5,000 + $160,000
  - **Total budgeted revenue** = $165,000
  
- **Flexible budget revenue for 35 customers**:
  - Revenue = $5,000 (fixed) + ($5,333.33 × 35 customers)
  - Revenue = $5,000 + $186,666.67
  - **Total flexible budget revenue** = $191,666.67

### Step 3: Compute the activity variance.
- **Activity variance** = Flexible budget revenue - Budgeted revenue
- Activity variance = $191,666.67 − $165,000 = **$26,666.67**

Since the actual activity level led to higher revenue than planned, this variance is **favorable** (F).

### Conclusion:
- **Activity variance for May's revenue** = **$26,666.67 (F)**

Would you like more details on any part of this calculation? 

Here are 5 related questions to expand this topic:
1. How would you calculate the activity variance for other expenses?
2. What is the difference between activity variance and spending variance?
3. Can the activity variance for fixed costs ever be favorable or unfavorable?
4. How does Adger Corporation's planning budget differ from its flexible budget?
5. What role do fixed and variable costs play in determining total revenue?

**Tip**: Always distinguish between fixed and variable elements when calculating variances to avoid misinterpreting results.

What activity variance would Adger report in May with respect to its revenue?

Calculate the activity variance for Adger Corporation's revenue based on a flexible budget versus a planned budget. This example involves comparing actual customer activity to planned customer activity, using the formula: activity variance = flexible budget revenue - budgeted revenue. Ideal for finance and accounting students.

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