Dunbar Footwear Corporation's flexible budget cost formula for supplies, a variable cost, is $2.67 per unit of output.Last month the company had a $9,604 favorable spending variance for supplies.During that month, 19,600 units were produced.Budgeted activity for the month had been 19,200 units.The actual cost per unit for indirect materials must have been closest to:

A) $1.73
B) $2.67
C) $2.18
D) $1.69

Question

Juan José Ballesteros · Accepted Answer

Final Answer : C, Explanation :  The flexible budget cost formula for supplies is $2.67 per unit of output. Therefore, the flexible budget amount for supplies for the actual production of 19,600 units would be:Flexible budget amount = $2.67 x 19,600 units = $52,332However, the company had a favorable spending variance of $9,604 for supplies during the month. This means that the actual cost incurred for supplies was lower than the flexible budget amount. Therefore, the actual cost incurred for supplies would be:Actual cost incurred = Flexible budget amount - Spending varianceActual cost incurred = $52,332 - $9,604Actual cost incurred = $42,728To find the actual cost per unit for indirect materials, we can divide the actual cost incurred by the actual number of units produced:Actual cost per unit = Actual cost incurred / Actual units producedActual cost per unit = $42,728 / 19,600 unitsActual cost per unit = $2.18Therefore, the actual cost per unit for indirect materials must have been closest to $2.18, which is closest to option C. X = actual cost per unit for indirect materialsSpending variance = Actual results - Flexible budget$9,604 F = (19,600 × X)- (19,600 × $2.67)-$9,604 = 19,600X ? $52,33219,600X = $52,332 - $9,60419,600X = $42,728X = $42,728 ÷ 19,600X = $2.18

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