Dunbar Footwear Corporation's flexible budget cost formula for supplies, a variable cost, is $2.67 per unit of output. The company's flexible budget performance report for last month showed a $9,604 favorable spending variance for supplies. During that month, 19,600 units were produced. Budgeted activity for the month had been 19,200 units. The actual cost per unit for indirect materials must have been closest to:
A) $1.73
B) $2.67
C) $2.18
D) $1.69

Question

Quizplus · Accepted Answer

We can use the formula for flexible budget variance to find the actual cost per unit for indirect materials:
Flexible budget variance = (Actual output - Budgeted output) x Budgeted cost per unit
$9,604 = (19,600 - 19,200) x Budgeted cost per unit
$9,604 = 400 x Budgeted cost per unit
Budgeted cost per unit = $9,604/400 = $24.01 per unit

Since the budgeted cost per unit only includes the variable cost for supplies, we can subtract the known variable cost formula of $2.67 per unit to find the actual cost per unit of indirect materials:
Actual cost per unit = $24.01 - $2.67 = $21.34

Therefore, the closest answer choice is C) $2.18 (which is the closest to $2.67 - the known variable cost)

Dunbar Footwear Corporation's Flexible Budget Cost Formula for Supplies, a Variable