Question

Olivera corporation's flexible budget performance report for last month shows that actual indirect materials cost, a variable cost, was $31,178 and that the spending variance for indirect materials cost was $2,261 unfavorable. during that month, the company worked 11,900 machine-hours. budgeted activity for the month had been 12,200 machine-hours. the cost formula per machine-hour for indirect materials cost must have been closest to:

Answer 1

To solve this problem, we should recall the spending variance is expressed as:

Spending variance = Actual results - Flexible budget

Where,

Spending variance = $ 2,261 Unfavorable

Actual results = $ 31,178

Flexible budget = 11,900  X

X represents the cost formula per machine-hour for indirect materials. Substituting the values to the equation:

2,261 = 31,178 - 11,900  X

- 11,900  X = - 28,917

X = $ 2.43           (ANSWER)