Asked by Kayla Lippoldt on May 14, 2024
Verified
Dunbar Footwear Corporation's flexible budget cost formula for supplies, a variable cost, is $2.67 per unit of output. The company's flexible budget performance report for last month showed a $9,604 favorable spending variance for supplies. During that month, 19,600 units were produced. Budgeted activity for the month had been 19,200 units. The actual cost per unit for indirect materials must have been closest to:
A) $1.73
B) $2.67
C) $2.18
D) $1.69
Indirect Materials
Materials used in the production process that cannot be directly linked to a specific product.
Flexible Budget
A budget that adjusts or varies with changes in volume or activity, allowing for more accurate budgeting and control in dynamic environments.
Spending Variance
The difference between the actual amount spent and the budgeted amount, which can be either favorable or unfavorable.
- Acquire knowledge of how the cost formula relates to budgeted activity levels and actual occurrences.
- Identify the estimated and incurred expenses through the utilization of a cost formula and activity details.
Verified Answer
Flexible budget variance = (Actual output - Budgeted output) x Budgeted cost per unit
$9,604 = (19,600 - 19,200) x Budgeted cost per unit
$9,604 = 400 x Budgeted cost per unit
Budgeted cost per unit = $9,604/400 = $24.01 per unit
Since the budgeted cost per unit only includes the variable cost for supplies, we can subtract the known variable cost formula of $2.67 per unit to find the actual cost per unit of indirect materials:
Actual cost per unit = $24.01 - $2.67 = $21.34
Therefore, the closest answer choice is C) $2.18 (which is the closest to $2.67 - the known variable cost)
Learning Objectives
- Acquire knowledge of how the cost formula relates to budgeted activity levels and actual occurrences.
- Identify the estimated and incurred expenses through the utilization of a cost formula and activity details.
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