At zero direct labor hours in a flexible budget graph the total budgeted cost line intersects the vertical axis at $30000. At 15000 direct labor hours a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $90000. Fixed and variable costs may be expressed as:
A) $30000 fixed plus $4 per direct labor hour variable.
B) $30000 fixed plus $6 per direct labor hour variable.
C) $60000 fixed plus $2 per direct labor hour variable.
D) $60000 fixed plus $4 per direct labor hour variable.

Question

Quizplus · Accepted Answer

The total budgeted cost at zero direct labor hours is $30,000, which represents the fixed costs. The increase to $90,000 at 15,000 direct labor hours means an increase of $60,000 for these hours. Dividing the $60,000 increase by 15,000 hours gives a variable cost of $4 per direct labor hour. Therefore, the costs are $30,000 fixed plus $4 per direct labor hour variable.

At Zero Direct Labor Hours in a Flexible Budget Graph