Prestridge Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for August.
When the company prepared its planning budget at the beginning of August, it assumed that 31 customers would have been served. However, 29 customers were actually served during August.
-The spending variance for total expenses for August would have been closest to:
A) $2,500 U
B) $2,500 F
C) $500 F
D) $500 U

Question

Prestridge Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for August.
  When the company prepared its planning budget at the beginning of August, it assumed that 31 customers would have been served. However, 29 customers were actually served during August.
-The spending variance for total expenses for August would have been closest to:
A) $2,500 U 
B) $2,500 F 
C) $500 F 
D) $500 U

Quizplus · Accepted Answer

The spending variance for total expenses is calculated by comparing the actual expenses to the budgeted or expected expenses. A variance is labeled as "U" for unfavorable if the actual expenses are higher than expected, and "F" for favorable if the actual expenses are lower than expected. Since the specific numbers leading to the calculation are not provided, the explanation is based on general principles. The choice "D) $500 U" suggests that the actual expenses were $500 more than expected, indicating an unfavorable variance.

Prestridge Corporation Is a Service Company That Measures Its Output