Asked by Jamie Flexer on May 05, 2024
Verified
Tos Corporation's flexible budget cost formula for indirect materials, a variable cost, is $0.60 per unit of output. If the company's performance report for last month shows an $800 unfavorable spending variance for indirect materials and if 9,000 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been:
A) $5,600
B) $4,600
C) $5,400
D) $6,200
Indirect Materials
Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.
Variable Cost
is a cost that varies with the level of output or activity, such as raw materials or piece-rate labor.
Spending Variance
The difference between the budgeted amount of expense or revenue and the actual amount spent or received.
- Estimate the budgeted and actual expenditures by leveraging a cost formula and data on activities.
- Understand the relationship between the cost formula, budgeted activity, and actual activity.
Verified Answer
Flexible budget = $0.60 x 9,000 = $5,400
However, the performance report shows an $800 unfavorable spending variance for indirect materials. This means that actual costs exceeded the flexible budget by $800. Therefore, the actual costs for indirect materials would be:
Actual costs = Flexible budget + Unfavorable variance
Actual costs = $5,400 + $800
Actual costs = $6,200
Therefore, the actual costs incurred for indirect materials for the month must have been $6,200. The correct answer is D.
Learning Objectives
- Estimate the budgeted and actual expenditures by leveraging a cost formula and data on activities.
- Understand the relationship between the cost formula, budgeted activity, and actual activity.
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