FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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![**Understanding Flexible Budgets and Variances: An Educational Exploration**
**Problem Statement:**
At 13,000 direct labor hours, the flexible budget for indirect materials is $39,000. If $40,400 are incurred at 13,400 direct labor hours, the flexible budget report should show the following difference for indirect materials:
**Options:**
1. $1,400 unfavorable
2. $200 unfavorable
3. $1,400 favorable
4. $200 favorable
**Detailed Analysis:**
To solve for the variance in indirect materials, follow these steps:
1. **Determine the Flexible Budget Cost per Hour:**
- Given that at 13,000 direct labor hours, the cost is $39,000:
\[
\text{Cost per direct labor hour} = \frac{\$39,000}{13,000 \text{ hours}} = \$3 \text{ per hour}
\]
2. **Calculate the Expected Budget at 13,400 Hours:**
- Using the cost per hour:
\[
\text{Expected budget} = 13,400 \text{ hours} \times \$3 \text{ per hour} = \$40,200
\]
3. **Identify the Actual Cost Incurred:**
- The actual cost incurred at 13,400 hours is $40,400.
4. **Calculate the Variance:**
- Variance = Actual Cost - Flexible Budgeted Cost:
\[
\text{Variance} = \$40,400 - \$40,200 = \$200
\]
5. **Determine if the Variance is Favorable or Unfavorable:**
- Since the actual cost is higher than the budgeted amount, it is unfavorable:
\[
\text{Variance} = \$200 \text{ unfavorable}
\]
**Conclusion:**
The correct answer is:
- $200 unfavorable.
This exercise helps students understand how flexible budgets adjust based on actual activity levels and how variances indicate deviations from expected performance, highlighting areas for managerial decision-making and control.](https://content.bartleby.com/qna-images/question/abd6f274-73f1-4c4d-8a54-e869eb8a0377/0a52d1ef-4a7d-4e6b-b0fb-dbd9f5de825a/5t44x2s.png)
Transcribed Image Text:**Understanding Flexible Budgets and Variances: An Educational Exploration**
**Problem Statement:**
At 13,000 direct labor hours, the flexible budget for indirect materials is $39,000. If $40,400 are incurred at 13,400 direct labor hours, the flexible budget report should show the following difference for indirect materials:
**Options:**
1. $1,400 unfavorable
2. $200 unfavorable
3. $1,400 favorable
4. $200 favorable
**Detailed Analysis:**
To solve for the variance in indirect materials, follow these steps:
1. **Determine the Flexible Budget Cost per Hour:**
- Given that at 13,000 direct labor hours, the cost is $39,000:
\[
\text{Cost per direct labor hour} = \frac{\$39,000}{13,000 \text{ hours}} = \$3 \text{ per hour}
\]
2. **Calculate the Expected Budget at 13,400 Hours:**
- Using the cost per hour:
\[
\text{Expected budget} = 13,400 \text{ hours} \times \$3 \text{ per hour} = \$40,200
\]
3. **Identify the Actual Cost Incurred:**
- The actual cost incurred at 13,400 hours is $40,400.
4. **Calculate the Variance:**
- Variance = Actual Cost - Flexible Budgeted Cost:
\[
\text{Variance} = \$40,400 - \$40,200 = \$200
\]
5. **Determine if the Variance is Favorable or Unfavorable:**
- Since the actual cost is higher than the budgeted amount, it is unfavorable:
\[
\text{Variance} = \$200 \text{ unfavorable}
\]
**Conclusion:**
The correct answer is:
- $200 unfavorable.
This exercise helps students understand how flexible budgets adjust based on actual activity levels and how variances indicate deviations from expected performance, highlighting areas for managerial decision-making and control.
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- A firm uses machine hours to allocate overhead cost. During the period, budgeted variable overhead is Rs. 10000 and budgeted machine hours is 100 hours for budgeted volume of 1000 units. The firm produced 1200 units consuming 150 hours and spent Rs. 15000 towards variable overhead. The total variable overhead cost variance is Rs. 3000 favorable Rs. 5000 favorable Rs. 5000 adverse Rs. 3000 adversearrow_forwardPlease help me with all answers thankuarrow_forwardJase Manufacturing Co.'s static budget at 7,800 units of production includes $23,400 for direct labor and $2,340 for electric power. Total fixed costs are $37,700. At 10,600 units of production, a flexible budget would show a. variable costs of $34,980 and $51,233 of fixed costs b. variable and fixed costs totaling $63.440 c. variable costs of $25,740 and $37,700 d. variable costs of $34,980 and $37,700 of fixed costsarrow_forward
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