Lotson Corporation bases its budgets on machine-hours. The company's static planning budget for May appears below: Actual results for the month were:
-The spending variance for power costs in the flexible budget performance report for the month should be:
A)$1,550 F
B)$4,160 F
C)$1,550 U
D)$4,160 U

Question

Lotson Corporation bases its budgets on machine-hours. The company's static planning budget for May appears below:  Actual results for the month were: 
-The spending variance for power costs in the flexible budget performance report for the month should be:
A)$1,550 F 
B)$4,160 F 
C)$1,550 U 
D)$4,160 U

Quizplus · Accepted Answer

Since the actual power cost is higher than the flexible budget power cost, it means that the company spent more than it planned. Therefore, the spending variance for power costs should be unfavorable or unfavorable. 
Flexible Budget Power Cost = 10,400
Actual Power Cost = 8,850
Spending Variance = Flexible Budget Power Cost - Actual Power Cost
Spending Variance = 10,400 - 8,850
Spending Variance = 1,550 U (Unfavorable) 
Therefore, the correct answer is C) $1,550 U.

Lotson Corporation Bases Its Budgets on Machine-Hours