Loughry Catering uses two measures of activity, jobs and meals, in the cost formulas in its budgets and performance reports. The cost formula for catering supplies is $530 per month plus $114 per job plus $16 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in October to be 25 jobs and 234 meals, but the actual activity was 20 jobs and 233 meals. The actual cost for catering supplies in October was $6,600. The catering supplies in the flexible budget for October would be closest to:
A) $6,600
B) $5,699
C) $6,538
D) $7,124

Question

Quizplus · Accepted Answer

To solve this problem, we need to use the flexible budget formula to calculate how much the company expected to spend on catering supplies given the actual activity level.

Flexible budget for catering supplies = $530 + ($114 x actual number of jobs) + ($16 x actual number of meals)

Plugging in the actual activity levels from October:

Flexible budget for catering supplies = $530 + ($114 x 20) + ($16 x 233) 
Flexible budget for catering supplies = $5,699

Since the actual cost for catering supplies in October was $6,600, this means that the company spent more than its flexible budget. However, we are only concerned with what the catering supplies in the flexible budget would be, so the closest answer choice is C, $6,538.

Loughry Catering Uses Two Measures of Activity, Jobs and Meals