Lartey Corporation's cost formula for its selling and administrative expense is $22,200 per month plus $27 per unit. For the month of December, the company planned for activity of 5,300 units, but the actual level of activity was 5,270 units. The actual selling and administrative expense for the month was $168,150. The spending variance for selling and administrative expense in December would be closest to:
A)$3,660 F
B)$3,660 U
C)$2,850 F
D)$2,850 U

Question

Quizplus · Accepted Answer

To calculate the spending variance, we first need to calculate the budgeted amount for selling and administrative expense based on the actual activity level of 5,270 units:

Budgeted amount = $22,200 + ($27 × 5,270) = $162,990

Now we can calculate the spending variance by subtracting the actual expense from the budgeted amount:

Spending variance = Budgeted amount - Actual expense
Spending variance = $162,990 - $168,150
Spending variance = $5,160 U

Since the actual expense is higher than the budgeted amount, the variance is unfavorable, or unfavorable (U). The closest answer choice is B, $3,660 U.

Lartey Corporation's Cost Formula for Its Selling and Administrative Expense