Asked by Julianne Marie on May 01, 2024
Verified
At 18000 direct labor hours the flexible budget for indirect materials is $36000. If $37400 are incurred at 18400 direct labor hours the flexible budget report should show the following difference for indirect materials:
A) $1400 unfavorable.
B) $1400 favorable.
C) $600 favorable.
D) $600 unfavorable.
Flexible Budget
A flexible budget that adapts to variations in activity or volume levels, enhancing the precision of budgeting and analysis of differences.
Indirect Materials
Supplies used in the production process that are not directly part of the final product, such as lubricants for machines.
Direct Labor Hours
The total number of hours worked by employees who are directly involved in the production process of goods or services.
- Understand and apply flexible budgeting, especially in the context of direct labor and manufacturing overhead costs.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
D
Explanation :
The flexible budget for indirect materials is based on a rate per direct labor hour. At 18,000 hours, the budget is $36,000, which means the rate is $2 per direct labor hour ($36,000 / 18,000 hours). At 18,400 hours, the flexible budget would therefore be $36,800 (18,400 hours * $2 per hour). Since $37,400 was actually incurred, this is $600 more than the flexible budget amount of $36,800, making it $600 unfavorable.
Learning Objectives
- Understand and apply flexible budgeting, especially in the context of direct labor and manufacturing overhead costs.