CellOne is a cellular phone service reseller, contracting with major cellular operators for airtime in bulk and then reselling service to retail customers. Having adopted an ABC system last year, CellOne has defined the following activity areas-contracting, marketing, technical service, and customer service.
The technical service area has one major cost driver-technical support-hours. One hour of technical support is budgeted for every 5,000 minutes of airtime sold. For the month ended August 31, 2015, CellOne budgeted to sell 6,850,000 minutes; however, actual minutes sold totalled 7,350,000. During August 2015, 1,500 actual technical support-hours were logged. Some additional data follow:
Actual Budget
Variable technical service activity cost........$37,800..................$39,456
Fixed technical service activity costs............81,000....................83,844
Budgeted input allowed for actual output achieved totalled 1,470 hours of technical support.
Required
1. What is the actual variable technical service activity area cost per technical support-hour? Budgeted cost per hour?
2. What is the allocated fixed technical service area overhead?
3. Calculate the rate variance, the efficiency variance, and the flexible-budget variance for variable overhead costs. Explain these variances based on the data provided.
4. Has CellOne management underallocated or overallocated fixed overhead for August 2015? Show how you calculate the underallocation or overallocation.