Lightsey Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the budgeted level of activity was 14,800 skeins and the actual level of activity was 15,100 skeins. The company's owner budgets for dye costs, a variable cost, at $0.51 per skein. The actual dye cost last month was $8,660. In the company's flexible budget performance report for last month, what would have been the spending variance for dye costs?

A) $959 U
B) $172 U
C) $1,112 U
D) $153 U

Question

Taylor Droemer · Accepted Answer

Final Answer : A, Explanation :  Spending variance = Actual cost - Budgeted costBudgeted cost = Budgeted activity level x Budgeted cost per unitBudgeted cost = 14,800 x $0.51 = $7,668Spending variance = $8,660 - $7,668 = $992 UHowever, we need to adjust for the difference in activity level:Flexible budget = Budgeted cost per unit x Actual activity levelFlexible budget = $0.51 x 15,100 = $7,701Adjusted spending variance = Actual cost - Flexible budgetAdjusted spending variance = $8,660 - $7,701 = $959 UTherefore, the spending variance for dye costs would be $959 U (choice A).

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