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16 November, 00:27

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

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  1. 16 November, 03:16
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    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.
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