Question

Pratte Boat Wash's cost formula for its cleaning equipment and supplies is $2,490 per month plus $47 per boat. For the month of April, the company planned for activity of 54 boats, but the actual level of activity was 12 boats. The actual cleaning equipment and supplies for the month was $3,150. The spending variance for cleaning equipment and supplies in April would be closest to: Multiple Choice $96 F $1,878 F $96 U $1,878 U

Answer 1

Answer:

(B)$1878 Favorable

Explanation:

Fixed Cost = $2,580

Let the number of boats =x

Variable Costs = Cost Per Boat X Number of Boats = 49x

Total Cost of Cleaning Equipment and Supplies = $(2580+49x)

Number of Boats Planned for= 54

Planned Budget for Cleaning Equipment and Supplies = 2,580 + (49 X 54 ) = $5,226

Actual Number if Boats in the Month = 12 boats

Budget for Cleaning Equipment and Supplies = (2,580 + 49 X 12) =$3,168

Spending Variance for Cleaning Equipment and Supplies = Planned Budget - Actual Budget

= 5,226 - 3,168 = $2,058

Since the Planned Budget is Greater than the Budget used, the Variance is Favorable.