Question

Main Street Merchandising anticipated selling 24,000 units of a major product and paying sales commissions of $5 per unit. Actual sales and sales commissions totaled 23,600 units and $120,360, respectively. If the company used a flexible budget for performance evaluations, Main Street would report a cost variance of:

A. $360U.

B. $360F.

C. $2,360U.

D. $2,360F.

E. some other amount not listed above

Answer 1

The cost variance for Main Street Merchandising, when evaluated with a flexible budget, is $2,360U, which indicates an unfavorable variance of $2,360 due to actual commissions being higher than the budgeted commissions for the actual sales level.The correct option is C.

Step-by-step explanation:

To calculate the cost variance using a flexible budget, we need to compare the actual expenses to what the expenses would have been, given the actual level of activity, according to the initially set standards.

Main Street Merchandising anticipated a commission cost of $5 per unit and actually sold 23,600 units.

If we multiply the actual units sold by the anticipated commission rate, we get the budgeted cost for the actual level of sales, which is (23,600 units * $5 per unit) = $118,000. The actual commissions paid were $120,360.

Therefore, the cost variance is calculated by subtracting the budgeted cost from the actual cost: $120,360 - $118,000 = $2,360. Since the actual cost was higher than the budgeted, this is an unfavorable variance.

Thus, the correct answer is C. $2,360U, indicating an unfavorable variance of $2,360.