Asked by Munei Tshidavhula on Jul 24, 2024
Verified
Younker Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for April. When the company prepared its planning budget at the beginning of April, it assumed that 31 containers would have been refurbished. However, 34 containers were actually refurbished during April.The spending variance for "Other expenses" for April would have been closest to:
A) $3,203 F
B) $500 F
C) $500 U
D) $3,203 U
Other Expenses
Costs that do not fit into the standard categories of operating expenses, often incidental or infrequent.
Spending Variance
The difference between the actual amount spent and the budgeted or planned amount for a specific period.
Containers Refurbished
Describes the process of cleaning, repairing, and possibly upgrading containers so they can be reused rather than disposed of.
- Determine the discrepancies in spending within distinct expense categories.
- Analyze the deviation in financial planning versus actual outlays.
- Recognize both positive and negative variances and understand their consequences for managerial decision-making.
Verified Answer
Flexible budget cost for Other expenses = Budgeted variable cost per container x Actual output + Fixed Other expenses
Flexible budget cost for Other expenses = $100 x 34 + $5,800
Flexible budget cost for Other expenses = $9,200
Next, we need to compare this flexible budget cost for Other expenses with the actual cost incurred in April:
Spending variance for Other expenses = Actual Other expenses - Flexible budget cost for Other expenses
Spending variance for Other expenses = $9,700 - $9,200
Spending variance for Other expenses = $500 U (Unfavorable)
Therefore, the correct answer is C) $500 U.
Learning Objectives
- Determine the discrepancies in spending within distinct expense categories.
- Analyze the deviation in financial planning versus actual outlays.
- Recognize both positive and negative variances and understand their consequences for managerial decision-making.
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