Question

Ros Corporation's flexible budget cost formula for indirect materials, a variable cost, is $0.90 per unit of output. If the company's performance report for last month shows a $500 unfavorable 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. $7,650b. $7,700c. $7,200e. $6,700

Answer 1

Answer:

b. $7,700

Explanation:

Ros Corporation

Budget cost  indirect materials, $0.90 per unit of output

Budget cost  indirect materials$0.90 *8000= 7200

Spending variance$500 Unfavorable

Spending variance = Actual Costs - Budgeted Costs

$500 Unfavorable = Actual  Costs-  $0.90 *8000

$500 Unfavorable = Actual  Costs-  7200

Actual Costs = 7200 + 500= $7700

As spending variance is unfavorable it means that the actual costs are higher than the budgeted cost. So we get the actual costs by adding the spending variance to  the budgeted costs.