Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units were produced with the following actual costs:

-Refer to Figure 11-3. Using an after-the-fact flexible budget, calculate the variance for power.
A) $1,000 F
B) $1,010 U
C) $3,000 U
D) $1,010 F
E) None of these.

Question

Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units were produced with the following actual costs:
 
-Refer to Figure 11-3. Using an after-the-fact flexible budget, calculate the variance for power.
A) $1,000 F 
B) $1,010 U 
C) $3,000 U 
D) $1,010 F 
E) None of these.

Quizplus · Accepted Answer

The variance for power using an after-the-fact flexible budget is calculated by comparing the actual costs to what the costs should have been given the actual level of activity. If the flexible budget for power was set based on actual activity levels but the actual power cost was lower, the variance would be favorable (F). Without specific numbers from Figure 11-3, the correct answer is based on understanding how variances are calculated and interpreted. A favorable variance (F) indicates that the actual costs were less than what was budgeted for the actual level of activity, hence option D ($1,010 F) is correct, indicating a favorable variance of $1,010.

Montgomery Normally Produces 15,000 Units (Each Unit Requires 0