In the Goblette Manufacturing Company indirect labor is budgeted for $108000 and factory supervision is budgeted for $36000 at normal capacity of 160000 direct labor hours. If 180000 direct labor hours are worked flexible budget total for these costs is:
A) $144000.
B) $162000.
C) $157500.
D) $148500.

Question

Quizplus · Accepted Answer

The flexible budget for indirect labor and factory supervision is calculated based on the actual direct labor hours worked. The total budgeted cost for indirect labor and factory supervision at normal capacity (160,000 hours) is $108,000 + $36,000 = $144,000. When the actual direct labor hours increase to 180,000, the budget needs to be adjusted proportionally. The increase in direct labor hours from the normal capacity is 180,000 / 160,000 = 1.125. Therefore, the flexible budget total is $144,000 * 1.125 = $162,000. However, the initial calculation did not account for the fact that the $144,000 already includes both indirect labor and factory supervision costs, and the correct flexible budget calculation should directly apply the proportional increase to the combined initial budget. The mistake in the explanation led to an incorrect conclusion. The correct approach is to adjust the combined initial budget of $144,000 by the proportional increase in labor hours, which has been correctly calculated as 1.125, leading to the correct flexible budget total.

In the Goblette Manufacturing Company Indirect Labor Is Budgeted for $108000