Randt Footwear Corporation's flexible budget cost formula for supplies, a variable cost, is $2.79 per unit of output. The company's flexible budget performance report for last month showed a $5,363 favorable spending variance for supplies. During that month, 17,300 units were produced. Budgeted activity for the month had been 17,200 units. The actual cost per unit for indirect materials must have been closest to:

Question

Quizplus · Accepted Answer

To calculate the actual cost per unit for indirect materials, we need to use the formula:

Actual cost per unit = (Actual spending - Flexible budget amount for the actual level of activity) / Actual output

We are given that the flexible budget cost formula for supplies is $2.79 per unit of output. Therefore, the flexible budget amount for the actual level of activity (17,300 units) would be:

Flexible budget amount = 17,300 units × $2.79 per unit = $48,137

We are also given that there was a favorable spending variance of $5,363 for supplies. This means that the actual spending on supplies was:

Actual spending = Flexible budget amount − Favorable variance
Actual spending = $48,137 − $5,363 = $42,774

Finally, we can calculate the actual cost per unit for indirect materials:

Actual cost per unit = ($42,774 − (17,200 × $2.79)) / 17,300
Actual cost per unit = $2.48

Therefore, the best choice is A) $2.48.

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