Kelsey, Inc. produces plastic grocery bags. Kelsey has developed a static budget for the month of August, which is based on 8,000 direct labour hours. During the quarter, the actual activity was 9,000 direct labour hours. Data for August are summarized as follows:

-Refer to the Figure.What is the flexible budget for August?
A)$142,000
B)$159,000
C)$165,000
D)$171,000

Question

Kelsey, Inc. produces plastic grocery bags. Kelsey has developed a static budget for the month of August, which is based on 8,000 direct labour hours. During the quarter, the actual activity was 9,000 direct labour hours. Data for August are summarized as follows:
 
-Refer to the Figure.What is the flexible budget for August?
A)$142,000 
B)$159,000 
C)$165,000 
D)$171,000

Quizplus · Accepted Answer

The flexible budget for August can be calculated using the formula: Flexible Budget = Fixed Costs + Variable Costs per Direct Labor Hour x Actual Number of Direct Labor Hours
Fixed Costs = $70,000 (given)
Variable Costs per Direct Labor Hour = $5 (given)
Actual Number of Direct Labor Hours = 9,000 (given)

Flexible Budget = $70,000 + ($5 x 9,000) = $115,000 + $45,000 = $160,000

Therefore, the closest option is B, which is $159,000.