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:

Answer 1

The actual cost per unit for indirect materials can be calculated using the following formula:

Actual cost per unit = (Flexible budget cost per unit x Actual activity) - Flexible budget amount

Flexible budget amount = Flexible budget cost per unit x Budgeted activity

Flexible budget cost per unit for supplies is $2.61 per unit of output, and budgeted activity for the month was 16,700 units. Therefore, the flexible budget amount for supplies was $43,647.

Actual activity for the month was 17,100 units, and the unfavorable spending variance for supplies was $6,840. This means that actual spending for supplies was $6,840 more than the flexible budget amount of $43,647, or $50,487.

Plugging these values into the formula, we get:

Actual cost per unit = ($2.61 x 17,100) - $43,647 = $44,187 - $43,647 = $540

Therefore, the actual cost per unit for indirect materials was closest to $540.