At zero direct labor hours in a flexible budget graph, the total budgeted cost line intersects the vertical axis at $20,000. At 10,000 direct labor hours, a horizontal line drawn from the total budgeted cost line intersects the vertical axis at $60,000. Fixed and variable costs may be expressed as:
A) $20,000 fixed plus $4 per direct labor hour variable.
B) $20,000 fixed plus $6 per direct labor hour variable.
C) $40,000 fixed plus $2 per direct labor hour variable.
D) $40,000 fixed plus $4 per direct labor hour variable.

Question

Quizplus · Accepted Answer

The fixed cost is $20,000 (the intercept at zero hours). The variable cost per hour is calculated by the change in cost divided by the change in hours: ($60,000 - $20,000) / (10,000 - 0) = $4 per direct labor hour.

At Zero Direct Labor Hours in a Flexible Budget Graph