At Eady Company, maintenance is a variable cost that varies directly with machine-hours. The performance report for July showed that actual maintenance costs totaled £8,650 and that the associated spending variance was £250 unfavourable. If 5,000 machine-hours were actually worked during July, the budgeted maintenance cost per machine-hour was
A)£1.73.
B)£1.78.
C)£1.68.
D)£1.83.

Question

Quizplus · Accepted Answer

We can use the following formula to calculate the budgeted maintenance cost per machine-hour:

Budgeted maintenance cost per machine-hour = (Actual maintenance costs - Spending variance) / Actual machine-hours

Substituting the given values, we get:

Budgeted maintenance cost per machine-hour = (£8,650 - £250) / 5,000 machine-hours
Budgeted maintenance cost per machine-hour = £8,400 / 5,000 machine-hours
Budgeted maintenance cost per machine-hour = £1.68 per machine-hour

Therefore, the budgeted maintenance cost per machine-hour was £1.68. Choice C) is the correct answer.

At Eady Company, Maintenance Is a Variable Cost That Varies