Courington Detailing's cost formula for its materials and supplies is $2,420 per month plus $9 per vehicle. For the month of August, the company planned for activity of 63 vehicles, but the actual level of activity was 33 vehicles. The actual materials and supplies for the month was $2,840.The spending variance for materials and supplies in August would be closest to:
A) $147 F
B) $123 F
C) $123 U
D) $147 U

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of materials and supplies that should have been used based on the planned activity of 63 vehicles:

$2,420 + ($9 per vehicle x 63 vehicles) = $2,997

This means that if the company had met its planned activity level, it should have spent $2,997 on materials and supplies. However, the actual amount spent was $2,840, which is $157 less than planned.

To calculate the spending variance, we need to compare the actual amount spent to the amount that should have been spent based on the actual number of vehicles detailed:

$2,840 - ($2,420 + ($9 per vehicle x 33 vehicles)) = $123 unfavorable (U)

The negative sign indicates that the company spent more than it should have based on the actual level of activity. Therefore, the correct answer is C) $123 U.

Courington Detailing's Cost Formula for Its Materials and Supplies Is