Herrod 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 $570 per month plus $98 per job plus $24 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 December to be 11 jobs and 98 meals, but the actual activity was 14 jobs and 102 meals. The actual cost for catering supplies in December was $4,500. The spending variance for catering supplies in December would be closest to:
A) $110 F
B) $110 U
C) $500 F
D) $500 U

Question

Quizplus · Accepted Answer

First, we need to calculate the expected cost for catering supplies based on the budgeted activity levels:
Expected cost = $570 + ($98 x 11) + ($24 x 98)
Expected cost = $570 + $1078 + $2352
Expected cost = $4000

Next, we can calculate the flexible budget for catering supplies based on the actual activity levels:
Flexible budget = $570 + ($98 x 14) + ($24 x 102)
Flexible budget = $570 + $1372 + $2448
Flexible budget = $4390

Finally, we can calculate the spending variance by subtracting the actual cost from the flexible budget:
Spending variance = Flexible budget - Actual cost
Spending variance = $4390 - $4500
Spending variance = $110 U (unfavorable)

Therefore, the correct choice is B, and the explanation is as above.

Herrod Catering Uses Two Measures of Activity, Jobs and Meals