Price and efficiency variances. CellOne, a cellular phone service reseller, contracts with major cellular operators for airtime in bulk and then resells service to retail customers.

CellOne budgeted to sell 7,800,000 minutes in the month ended March 31, 2007. Actual min¬

utes sold totalled only 7,500,000. Because of fluctuations in hourly usage, CellOne “overbuys”

airtime from cellular operators. CellOne plans to buy 10% more airtime than they plan to sell—for example, CellOne’s budgets called for the purchase of 8,580,000 minutes (the actual purchased amount as well) based on the plan to sell 7,800,000 minutes. We refer to purchased airtime as direct materials. Use 8,250,000 (7,500,000 X 1.1) minutes in the flexible budget.

CellOne budgeted purchased airtime to cost 5.4 cents per minute. Actual purchased airtime in 2007 averaged 6.0 cents per minute. CellOne incurs direct labour costs from the employment of technicians. One hour of technical support is required for every 5,000 minutes of airtime sold. In practice, only 1,600 hours of technical support were used.

Technical support was planned at $72 per hour. Actual technical support costs averaged

$74.40 per hour.

Required 1. Calculate the flexible-budget variance for direct materials and direct labour costs.

2. Calculate the price and efficiency variances for materials and labour.