Newsom Footwear Corporation\'s flexible budget cost formula for supplies, a vari

Question

Newsom Footwear Corporation's flexible budget cost formula for supplies, a variable cost, is $2.61 per unit of output. The company's flexible budget performance report for last month showed a $6,840 unfavorable spending variance for supplies. During that month, 17,100 units were produced. Budgeted activity for the month had been 16,700 units. The actual cost per unit for indirect materials must have been closest to:

Explanation / Answer

Spending Variance = Expected catering supplies - Actual catering Supplies = (SR - AR)AU Given Unfavourable spending Variance = $6,840 =>($2.61 - AR) x 17,100 units = - $6,840 => $2.61 - AR = $0.40 => Actual rate (AR) = $2.61 + $0.40 = $3.01 The actual cost per unit for indirect materials must have been closest to $3.01

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