Cahalane Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the budgeted level of activity was 11,600 skeins and the actual level of activity was 12,000 skeins. The company's owner budgets for dye costs, a variable cost, at $0.31 per skein. The actual dye cost last month was $3,540. In the company's flexible budget performance report for last month, what would have been the spending variance for dye costs?
A) $118 U
B) $124 U
C) $56 F
D) $180 F

Question

Quizplus · Accepted Answer

Flexible budget for actual level of activity:
Dye cost = (actual level of activity x budgeted cost per unit) = 12,000 x $0.31 = $3,720

Spending variance for dye costs:
Actual dye cost - Flexible budget amount for dye cost = $3,540 - $3,720 = $180 F

Cahalane Natural Dying Corporation Measures Its Activity in Terms of Skeins