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 F 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

The formula for calculating the flexible budget indirect labor cost per direct labor-hour is:

Flexible budget indirect labor cost = Budgeted indirect labor rate × Actual direct labor hours

Spending variance = Actual indirect labor cost - Flexible budget indirect labor cost

$245 F = $5,780 - (Budgeted indirect labor rate × 24,100)

Solving for the budgeted indirect labor rate:

Budgeted indirect labor rate = ($5,780 - $245 F) ÷ 24,100 = $0.23 per direct labor-hour

Therefore, the flexible budget cost formula for indirect labor per direct labor-hour is $0.23, which is closest to answer choice B ($0.25).

At Jacobson Company, Indirect Labor Is a Variable Cost That