Ros Corporation's flexible budget cost formula for indirect materials, a variable cost, is $0.90 per unit of output. If the company's performance report for last month shows a $500 unfavorable spending variance for indirect materials and if 8,000 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been:
A)$7,650
B)$7,700
C)$7,200
D)$6,700

Question

Quizplus · Accepted Answer

The flexible budget formula for indirect materials is $0.90 per unit of output. Therefore, for 8,000 units of output, the flexible budget for indirect materials would be:

$0.90 x 8,000 = $7,200

However, the performance report shows a $500 unfavorable spending variance, which means that the actual cost incurred for indirect materials was higher than the amount budgeted in the flexible budget.

To find the actual cost incurred, we need to add the unfavorable variance to the flexible budget amount:

$7,200 + $500 = $7,700

Therefore, the actual cost incurred for indirect materials for the month was $7,700, which is answer choice B.

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