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Jason, Inc. produces leather purses. Jason has developed a static budget for the first quarter, based on 20,000 direct labor hours. During the quarter, the actual activity was 22,000 direct labor hours. Data for the first quarter are summarized as follows: Static budget Actual costs (20,000 hours) (22,000 hours) Direct materials cost $ 80,000 $ 87,000 Direct labor cost 160,000 174,000 Building rental 48,000 50,000 Total $288,000 $311,000 What is the flexible budget amount for the first quarter?

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Answer:

Total cost= $304,000

Explanation:

Giving the following information:

Static budget (20,000 hours):

Direct materials cost= 80,000

Direct labor cost= 160,000

Building rental= 48,000

Total= $288,000

The flexible budget shows the total cost using the standard unitary cost adjusted by the actual production information for the period.

We will treat the building rental as fixed costs (there is no reason to believe that it changed with production). Direct material does not change with the number of hours.

First, we need to calculate the unitary costs:

Direct labor= 160,000/20,000= $8

Flexible budget for 22,000 hours:

Direct material= 80,000

Direct labor= 22,000*8= 176,000

Building rental= 48,000

Total cost= $304,000

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