Vangemert Corporation Uses Customers Served as Its Measure of Activity

question 287

Essay

Vangemert Corporation uses customers served as its measure of activity. During June, the company budgeted for 22,000 customers, but actually served 25,000 customers. The company uses the following revenue and cost formulas in its budgeting, where q is the number of customers served:
Revenue: $5.30q
Wages and salaries: $35,400 + $1.90q
Supplies: $0.70q
Insurance: $9,600
Miscellaneous expense: $5,000 + $0.10q
The company reported the following actual results for June: Required:
Prepare a report showing the company's revenue and spending variances for June. Label each variance as favorable (F) or unfavorable (U).

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Definitions:

Nonexcludable

A characteristic of a good or service where it is not possible to prevent people who have not paid for it from having access to it.

Negative Externality

A cost that is suffered by a third party as a result of an economic transaction.

Pigovian Externality

A situation where a market activity imposes a positive or negative cost or benefit on a third-party that is not reflected in the market price.

Free-Rider Problem

A situation in a shared-resource system where individuals consume more than their fair share or pay less than their fair share of the cost.