Question

higgs enterprise's flexible budget cost formula for indirect materials, a variable cost, is $0.75 per unit of output. if the company's performance report for last month shows a $600 favorable 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: multiple choice $6,000 $5,400 $6,600 $5,200

Answer 1

The actual cost incurred for indirect materials by Higgs Enterprise last month was $5,400, calculated by subtracting the $600 favorable variance from the budgeted cost for 8,000 units at $0.75 per unit.

Step-by-step explanation:

The student is asking about the calculation of actual indirect material costs based on a given favorable spending variance and output level. Higgs Enterprise's flexible budget cost formula for indirect materials is $0.75 per unit. With 8,000 units produced last month and a $600 favorable variance, the actual cost can be calculated by first determining the budgeted cost and then adjusting it by the spending variance.

To find the budgeted cost for the indirect materials, we multiply the cost per unit by the number of units produced: 8,000 units × $0.75 per unit = $6,000. Since the variance is favorable, this means the actual cost was less than budgeted. Therefore, we subtract the $600 variance from the budgeted cost to get the actual cost incurred for indirect materials, which is $6,000 - $600 = $5,400.