Barrick Company has established a flexible budget for manufacturing overhead based on direct labour-hours. Total budgeted costs at 200,000 direct labour-hours are as follows$\text { Variable costs (total): }$
$\begin{array}{ll}
\text { Packing supplies } & £ 120,000 \
\text { Indirect labour } & £ 180,000 \
\text { Fixed costs (total): } & \
\text { Utilities } & £ 100,000 \
\text { Rent } & £ 40,000 \
\text { Insurance } & £ 20,000
\end{array}$
-
If Barrick Company plans to operate at 190,000 direct labour-hours during the next period, the flexible budget would show indirect labour costs of

Question

Barrick Company has established a flexible budget for manufacturing overhead based on direct labour-hours. Total budgeted costs at 200,000 direct labour-hours are as follows$\text { Variable costs (total): }$
$\begin{array}{ll}
\text { Packing supplies } & £ 120,000 \
\text { Indirect labour } & £ 180,000 \
\text { Fixed costs (total): } & \
\text { Utilities } & £ 100,000 \
\text { Rent } & £ 40,000 \
\text { Insurance } & £ 20,000
\end{array}$ 
-
If Barrick Company plans to operate at 190,000 direct labour-hours during the next period, the flexible budget would show indirect labour costs of

Quizplus · Accepted Answer

Indirect labour is a variable cost, so it changes with the level of activity. At 200,000 hours, the cost is £180,000. Therefore, at 190,000 hours (95% of 200,000), the cost would be 95% of £180,000, which is £171,000.

Barrick Company Has Established a Flexible Budget for Manufacturing Overhead Variable costs (total): \text { Variable costs (total): } Variable costs (total):

Barrick Company Has Established a Flexible Budget for Manufacturing Overhead $\text { Variable costs (total): }$