Tos Corporation's flexible budget cost formula for indirect materials, a variable cost, is $0.60 per unit of output. If the company's performance report for last month shows an $800 unfavorable spending variance for indirect materials and if 9,000 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been:
A) $5,600
B) $4,600
C) $5,400
D) $6,200

Question

Quizplus · Accepted Answer

The flexible budget formula for indirect materials is $0.60 per unit of output. Therefore, the flexible budget for 9,000 units of output would be:

Flexible budget = $0.60 x 9,000 = $5,400

However, the performance report shows an $800 unfavorable spending variance for indirect materials. This means that actual costs exceeded the flexible budget by $800. Therefore, the actual costs for indirect materials would be:

Actual costs = Flexible budget + Unfavorable variance
Actual costs = $5,400 + $800
Actual costs = $6,200

Therefore, the actual costs incurred for indirect materials for the month must have been $6,200. The correct answer is D.

Tos Corporation's Flexible Budget Cost Formula for Indirect Materials, a Variable