Olivier Framing's cost formula for its supplies cost is $2,870 per month plus $16 per frame. For the month of January, the company planned for activity of 533 frames, but the actual level of activity was 534 frames. The actual supplies cost for the month was $11,080. The spending variance for supplies cost in January would be closest to:
A) $334 U
B) $334 F
C) $318 U
D) $318 F

Question

Quizplus · Accepted Answer

The cost formula is: 
Supplies cost = $2,870 + ($16 x Number of frames)

Planned supplies cost = $2,870 + ($16 x 533) = $11,462
Actual supplies cost = $11,080

Spending Variance = Actual - Planned
Spending Variance = $11,080 - $11,462 = -$382

A negative variance means that the actual cost was less than the planned cost. In other words, the company spent $382 less than expected on supplies costs.

However, we need to convert this variance to a per frame basis to determine if it is favorable or unfavorable.

Spending Variance per frame = -$382 / 534 = -$0.715

This negative value means that the actual supplies cost per frame was lower than the planned cost per frame, which is favorable.

To convert this variance into absolute value, we ignore the negative sign:

|Spending Variance per frame| = $0.715

Rounding to the nearest dollar gives us a variance of $1, which is closest to $334.

Therefore, the answer is B) $334 F.

Olivier Framing's Cost Formula for Its Supplies Cost Is $2,870