Baxter Corporation's master budget calls for the production of 5,000 units of its product monthly. The master budget includes indirect labour of £144,000 annually; Baxter considers indirect labour to be a variable cost. During the month of April, 4,500 units of product were produced, and indirect labour costs of £10,100 were incurred. A performance report utilizing flexible budgeting would report a spending variance for indirect labour of

Question

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The flexible budget for indirect labour at 4,500 units would be £144,000/12 months * (4,500/5,000) = £10,800. The actual cost was £10,100, resulting in a £700 favourable variance (£10,800 - £10,100).

Baxter Corporation's Master Budget Calls for the Production of 5,000