Question

Shelby Boat Wash's cost formula for its cleaning equipment and supplies is $2,940 per month plus $35 per boat. For the month of September, the company planned for activity of 73 boats, but the actual level of activity was 29 boats. The actual cleaning equipment and supplies for the month was $4,010.

The spending variance for cleaning equipment and supplies in September would be closest to:

$1,485U

$55 F

$55 U

$1,485 F

Answer 1

PARTICULARS	BUDGETED COST	STANDARD COST	ACTUAL COST
Cleaning Equipment Cost	$2940	$2940	NA
Supplies Cost	73*$35=2555	29*$35=1015	NA
Total Cost	$5495	$3955	$4010

The spending variance for cleaning equipment and supplies in September would be closest to: $3955 - $4010 = $55 Unfavorable.

Note: In the standard costing system, we do not compare budgeted cost with actual cost. We compare standard cost for actual output with actual cost for actual output. Hence $ 1485 Favorable/Unfavorable are not the answer. We compare standard cost of $3955 with Actual cost of $4010. Hence $55 Unfavorable is the answer.