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.

Question

Quizplus · Accepted Answer

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.

At 18000 Direct Labor Hours the Flexible Budget for Indirect