Lightsey Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the budgeted level of activity was 14,800 skeins and the actual level of activity was 15,100 skeins. The company's owner budgets for dye costs, a variable cost, at $0.51 per skein. The actual dye cost last month was $8,660. In the company's flexible budget performance report for last month, what would have been the spending variance for dye costs?
A) $959 U
B) $172 U
C) $1,112 U
D) $153 U

Question

Quizplus · Accepted Answer

Spending variance = Actual cost - Budgeted cost
Budgeted cost = Budgeted activity level x Budgeted cost per unit
Budgeted cost = 14,800 x $0.51 = $7,668

Spending variance = $8,660 - $7,668 = $992 U

However, we need to adjust for the difference in activity level:

Flexible budget = Budgeted cost per unit x Actual activity level
Flexible budget = $0.51 x 15,100 = $7,701

Adjusted spending variance = Actual cost - Flexible budget
Adjusted spending variance = $8,660 - $7,701 = $959 U

Therefore, the spending variance for dye costs would be $959 U (choice A).

Lightsey Natural Dying Corporation Measures Its Activity in Terms of Skeins