At Mahlon Company, a manufacturer of boats, indirect labor is a variable cost that varies with direct labor-hours. Last month's performance report showed that actual indirect labor cost totaled $5,780 for the month and that the associated spending variance was $245 F. If 24,100 direct labor-hours were actually worked last month, then the flexible budget cost formula for indirect labor must be (per direct labor-hour) :

Question

Bruce Burke

Business

12 September, 05:38

At Mahlon Company, a manufacturer of boats, indirect labor is a variable cost that varies with direct labor-hours. Last month's performance report showed that actual indirect labor cost totaled $5,780 for the month and that the associated spending variance was $245 F. If 24,100 direct labor-hours were actually worked last month, then the flexible budget cost formula for indirect labor must be (per direct labor-hour) :

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Sue · Answer 1

The flexible budget cost formula for indirect labor must be (per direct labor-hour) is $0.25

Explanation:

For computing the direct labor hour rate, we have to use the formula which is shown below

= (Actual indirect labor cost + favorable associated spending variance):

total direct labor hours

where,

Actual indirect labor cost is $5,780

Favorable associated spending variance is $245

And, the total direct labor hour is $24,100

Now put these values to the above formula

So, the answer would be equal to

= ($5780 + $245) : 24,100 hours

= $6,025 : 24,100 hours

= $0.25

Since the variance comes in favorable so we added in the actual indirect labor cost.

Hence, the flexible budget cost formula for indirect labor must be (per direct labor-hour) is $0.25