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

Answer and Explanation:

The preparation is presented below;

a. For a static budget report

Product line Budget Actual Difference

Direct labor $200,000 $206,000 $6,000 unfavorable

(10,000 direct labor hours * $20 per hour)

It is unfavorable as the budget is less than the actual

b. For a flexible budget report

Product line Budget Actual Difference

Direct labor $208,000 $206,000 $2,000 favorable

(10,400 direct labor hours * $20 per hour)

It is favorable as the budget is more than the actual