Asked by Rabina Pandey on Jul 26, 2024
Verified
Moncrief Corporation bases its budgets on machine-hours. The company's static planning budget for July appears below: Actual results for the month were:
The spending variance for equipment depreciation in the flexible budget performance report for the month should be:
A) $1,890 U
B) $90 F
C) $90 U
D) $1,890 F
Equipment Depreciation
The process of allocating the cost of tangible assets over their useful lives, representing wear and tear on equipment.
Machine-hours
The measurement of the amount of time machines are used in the manufacturing process, rephrased as "The cumulative operational time of machines for production."
Spending Variance
The difference between the budgeted or planned amount of expenditure and the actual amount spent.
- Examine the fiscal outcomes by applying flexible budgeting techniques.
- Differentiate between expenditures and activity variances.
Verified Answer
Flexible Budget Amount for Equipment Depreciation = Budgeted Machine Hours x Budgeted Depreciation Rate per Machine Hour = 8,400 x $0.30 = $2,520
Actual Amount Spent on Equipment Depreciation = Actual Machine Hours x Actual Depreciation Rate per Machine Hour = 9,000 x $0.27 = $2,430
Spending Variance = Flexible Budget Amount - Actual Amount Spent = $2,520 - $2,430 = $90 U
Therefore, the spending variance for equipment depreciation in the flexible budget performance report for the month is $90 U, so the best choice is C.
Learning Objectives
- Examine the fiscal outcomes by applying flexible budgeting techniques.
- Differentiate between expenditures and activity variances.
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