**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 unfavorable2. $200 unfavorable3. $1,400 favorable4. $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.

Standard rate for indirect material = Flexible budget for indirect material /Flexible budget direct…

At 13000 direct labor hours, the flexible budget for indirect materials is $39000. If $40400 are incurred at 13400 direct labor hours, the flexible budget report should show the following difference for indirect materials: O $1400 unfavorable. O $200 unfavorable. O $1400 favorable. O $200 favorable.

At 13000 direct labor hours, the flexible budget for indirect materials is $39000. If $40400 are incurred at 13400 direct labor hours, the flexible budget report should show the following difference for indirect materials: O $1400 unfavorable. O $200 unfavorable. O $1400 favorable. O $200 favorable.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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