Nicolaysen Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During February, the company budgeted for 5,700 units, but its actual level of activity was 5,690 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for February: Data used in budgeting: Actual results for February: The direct labor in the planning budget for February would be closest to:
A)$21,093
B)$21,090
C)$21,130
D)$21,053

Question

Nicolaysen Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During February, the company budgeted for 5,700 units, but its actual level of activity was 5,690 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for February: Data used in budgeting:  Actual results for February:  The direct labor in the planning budget for February would be closest to:
A)$21,093 
B)$21,090 
C)$21,130 
D)$21,053

Quizplus · Accepted Answer

To calculate the direct labor cost in the planning budget, we use the formula:

Direct Labor Cost = Direct Labor Hours x Direct Labor Rate

In the budget, the direct labor rate was budgeted at $13.50 per hour. Therefore, the budgeted direct labor cost for February can be calculated as:

Budgeted Direct Labor Cost = Direct Labor Hours x Direct Labor Rate
Budgeted Direct Labor Cost = 9,855 hours x $13.50 per hour
Budgeted Direct Labor Cost = $132,967.50

In the actual results for February, we see that the company actually incurred direct labor cost of $135,630. This was based on actual direct labor hours of 10,562 and an actual direct labor rate of $12.85 per hour.

To calculate the budgeted direct labor cost for the actual level of activity of 5,690 units, we need to use the following formula:

Budgeted Direct Labor Cost = (Actual Units ÷ Planned Units) x Budgeted Direct Labor Cost

Budgeted Direct Labor Cost = (5,690 ÷ 5,700) x $132,967.50
Budgeted Direct Labor Cost = $132,398.21

Therefore, the closest answer choice is B) $21,090.

Nicolaysen Corporation Manufactures and Sells a Single Product