In Rooney Company, direct labor is $20 per hour. The company expects to operate at 10,000 direct labor hours each month. In January 2017, direct labor totaling $206,000 is incurred in working 10,400 hours. Prepare (a) a static budget report and (b) a flexible budget report. Evaluate the usefulness of each repo

Static Budget = $200,000

Flexible Budget = $208,000

Explanation:

Static Budget is based on standard activity that reflects that Rooney Company use 10,000 Direct Labour every month on Standard. In order get the direct Labour cost for static budget we use the following formula (Standard hour of activity x Standard direct labour cost per hour). The static budget for direct labour cost (10000 direct labour hour x $ 20) = $200,000.

In order to get flexible budget value for direct labour cost we use actual hour used and standard direct labour cost per hour. So flexible budget is (10400 direct labour hour x $ 20 per Labour hour) = $208000