Rients Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for October. When the company prepared its planning budget at the beginning of October, it assumed that 39 customers would have been served. However, 44 customers were actually served during October.The spending variance for "Other expenses" for October would have been closest to:
A) $400 F
B) $3,625 F
C) $400 U
D) $3,625 U

Question

Rients Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for October.  When the company prepared its planning budget at the beginning of October, it assumed that 39 customers would have been served. However, 44 customers were actually served during October.The spending variance for "Other expenses" for October would have been closest to:
A) $400 F 
B) $3,625 F 
C) $400 U 
D) $3,625 U

Quizplus · Accepted Answer

To calculate the spending variance for "Other expenses", we need to first calculate the flexible budget for actual output.

Flexible budget = Fixed cost + (Variable cost per unit x Actual output)

Fixed cost = $8,600
Variable cost per unit = $17 + $19 + $2 = $38

Actual output = 44

Flexible budget = $8,600 + ($38 x 44) = $9,972

Next, we compare the flexible budget to the actual cost incurred for "Other expenses" which is $10,372.

Spending variance = Actual cost - Flexible budget
= $10,372 - $9,972
= $400 U

Therefore, the answer is choice C, $400 U.

Rients Corporation Is a Service Company That Measures Its Output