Asked by Nicole Enabosi on Jul 19, 2024
Verified
Higgs Enterprise's flexible budget cost formula for indirect materials, a variable cost, is $0.75 per unit of output. If the company's performance report for last month shows a $600 favorable spending variance for indirect materials and if 8,000 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been:
A) $6,000
B) $5,400
C) $6,600
D) $5,200
Indirect Materials
Materials used in the support of the production process that are not easily traced to specific products, essential for maintaining production equipment.
Favorable Variance
A financial term indicating that actual costs were less or actual revenues were more than what was budgeted or forecasted.
Variable Cost
Variable costs vary directly with the level of production output, including expenses like raw materials and direct labor.
- Understand the concept and application of flexible budgets in identifying variances.
- Calculate spending variances for different categories of costs.
- Analyze the differences between actual and budgeted costs.
Verified Answer
Learning Objectives
- Understand the concept and application of flexible budgets in identifying variances.
- Calculate spending variances for different categories of costs.
- Analyze the differences between actual and budgeted costs.
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