Smith Corporation Is a Shipping Container Refurbishment Company That Measures

question 358

Essay

Smith Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for February.
When the company prepared its planning budget at the beginning of February, it assumed that 31 containers would have been refurbished. However, 26 containers were actually refurbished during February.
Required:
Prepare a report showing the company's revenue and spending variances for February. Indicate in each case whether the variance is favorable (F) or unfavorable (U).

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Definitions:

Output

The quantity of goods or services produced in a given time period.

Total Fixed Costs

The sum of all costs required to produce any level of output that do not change with the quantity produced, such as rent or salaries.

Workers

Individuals engaged in physical or mental activities aimed at producing goods or providing services in exchange for wages.

AVC

Stands for Average Variable Cost, which is the per-unit cost of production excluding fixed costs, changing with the level of output.