Figure 1
Torino, SA., manufactures machine parts. Torino has developed a static budget for its plant at an activity level of 10,000 direct labour hours for the month of March. The actual level of activity was 11,000 hours. The following table summarizes the static budget and the actual costs for March:
-Refer to Figure 1. What is the flexible budget for March?
A) £28,800
B) £29,800
C) £30,900
D) £31,680

Question

Quizplus · Accepted Answer

To determine the flexible budget, we need to calculate the variable cost per direct labour hour and then multiply it by the actual direct labour hours.

Variable cost per direct labour hour = (Budgeted variable costs - Actual fixed costs) ÷ Budgeted direct labour hours
= (£54,000 - £10,000) ÷ 10,000 hours
= £4.00 per hour

Flexible budget = (Flexible variable costs + Actual fixed costs)
= (11,000 hours x £4.00 per hour) + £19,900
= £30,900

Therefore, the flexible budget for March is £30,900 (option C).

Figure 1 Torino, SA., Manufactures Machine Parts. Torino Has Developed a Static