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 total budget variance.
A) $12,510 U
B) $3,600 U
C) $5,000 F
D) $12,510 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 total budget variance.
A) $12,510 U 
B) $3,600 U 
C) $5,000 F 
D) $12,510 F 
E) None of these.

Quizplus · Accepted Answer

Flexible budget is created by multiplying the actual output (19,000 units) by the standard cost per unit. Therefore, the flexible budget for direct labor is:
19,000 units x 0.30 direct labor hours per unit x $14 per direct labor hour = $80,400
The total actual cost for direct labor is $93,910. 
Total budget variance = actual cost - flexible budget = $93,910 - $81,400 = $12,510 F. Therefore, the correct answer is D.

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