At Jacobson Company, 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 Favorable. 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):
A) $0.20
B) $0.25
C) $0.30
D) $0.35

Question

Quizplus · Accepted Answer

Flexible budget = (Direct labor-hours x Variable cost per hour)

Given actual cost = $5,780 and favorable variance = $245.
Therefore, flexible budget cost = Actual indirect labor cost - Variance
= $5,780 - $245
= $5,535

Flexible budget formula = Flexible budget cost / Direct labor-hours
= $5,535 / 24,100
= $0.229 per direct labor-hour, which is closest to option B) $0.25 per direct labor-hour. Therefore, the best choice is B).

At Jacobson Company, Indirect Labor Is a Variable Cost That