Sissac Catering uses two measures of activity, jobs and meals, in the cost formu
ID: 2497360 • Letter: S
Question
Sissac Catering uses two measures of activity, jobs and meals, in the cost formulas in its budgets and performance reports. The cost formula for catering supplies is $440 per month plus $104 per job plus $24 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in May to be 14 jobs and 124 meals, but the actual activity was 8 jobs and 131 meals. The actual cost for catering supplies in May was $4,250. The spending variance for catering supplies in May would be closest to:
$166 F
$622 F
$622 U
$166 U
Sissac Catering uses two measures of activity, jobs and meals, in the cost formulas in its budgets and performance reports. The cost formula for catering supplies is $440 per month plus $104 per job plus $24 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in May to be 14 jobs and 124 meals, but the actual activity was 8 jobs and 131 meals. The actual cost for catering supplies in May was $4,250. The spending variance for catering supplies in May would be closest to:
Explanation / Answer
Total spending variance = Standard overhed - Actual overhead incurred
Standard overhead = Estimated Catering supplies + Estimated Job cost + Estimated Meal cost
Catering supplies = $440
Add: Job cost = $1,456 ($104 * 14)
Add: Meal cost = $2,976 ($24 * 124)
Total standard cost = $4,872
Actual cost incurred = $4,250
Total spending variance = Standard overhed - Actual overhead incurred
= $4,872 - $4,250
= $622 Favorable
It is favorable because the actual cost is less than the standard.
Therefore, second option of $622F is correct.