Zike Corporation's static planning budget for October appears below. The company bases its budgets on machine-hours.

In October, the actual number of machine-hours was 6,000, the actual supplies cost was $14,740, the actual power cost was $49,170, the actual salaries cost was $15,390, and the actual equipment depreciation was $63,670.
-The spending variance for equipment depreciation in the flexible budget performance report for the month should be:
A)$970 F
B)$970 U
C)$2,330 U
D)$2,330 F

Question

Zike Corporation's static planning budget for October appears below. The company bases its budgets on machine-hours.

In October, the actual number of machine-hours was 6,000, the actual supplies cost was $14,740, the actual power cost was $49,170, the actual salaries cost was $15,390, and the actual equipment depreciation was $63,670.
-The spending variance for equipment depreciation in the flexible budget performance report for the month should be:
A)$970 F 
B)$970 U 
C)$2,330 U 
D)$2,330 F

Quizplus · Accepted Answer

Equipment depreciation is a fixed cost and should not be affected by changes in production. Therefore, the flexible budget amount should match the actual amount spent. The fact that the actual amount spent is higher than the flexible budget amount indicates an unfavorable variance, which is shown as an unfavorable amount in the performance report. Since the actual amount spent is higher than the flexible budget amount, the variance is unfavorable and the correct answer is B) $970 U (Unfavorable).

Zike Corporation's Static Planning Budget for October Appears Below