Olivera Corporation's performance report for last month shows that actual indirect materials cost, a variable cost, was $31,178 and that the spending variance for indirect materials cost was $2,261 unfavorable. During that month, the company worked 11,900 machine-hours. Budgeted activity for the month had been 12,200 machine-hours. The cost formula per machine-hour for indirect materials cost must have been closest to:
A)$2.74
B)$2.81
C)$2.37
D)$2.43

Question

Quizplus · Accepted Answer

The spending variance is calculated as the difference between the actual cost and the flexible budget cost. The flexible budget cost can be found by subtracting the spending variance from the actual cost: $31,178 - $2,261 = $28,917. The flexible budget cost is based on the actual machine-hours worked, which is 11,900 hours. Therefore, the cost formula per machine-hour is $28,917 / 11,900 = $2.43.

Olivera Corporation's Performance Report for Last Month Shows That Actual