Wicks Company has established a flexible budget for manufacturing overhead based on direct labour-hours. Budgeted costs at 100,000 direct labour-hours are as follows:$\begin{array} { l l }
\text { Variable costs (total):}\
\text { Packing supplies } & £ 70,000 \ \text { Indirect labour } & £ 90,000\
\text { Fixed costs (total):}\
\text { Utilities}& £50,000\
\text { Rent}& £20,000\
\text { Insurance}& £10,000
\end{array}$

-
If Wicks Company plans to operate at 90,000 direct labour-hours during the next period, the flexible budget would show indirect labour costs of

Question

Wicks Company has established a flexible budget for manufacturing overhead based on direct labour-hours. Budgeted costs at 100,000 direct labour-hours are as follows:$\begin{array} { l l } 
\text { Variable costs (total):}\
\text { Packing supplies } & £ 70,000 \ \text { Indirect labour } & £ 90,000\
 \text { Fixed costs (total):}\
 \text { Utilities}& £50,000\
 \text { Rent}& £20,000\
 \text { Insurance}& £10,000
 \end{array}$

-
If Wicks Company plans to operate at 90,000 direct labour-hours during the next period, the flexible budget would show indirect labour costs of

Quizplus · Accepted Answer

To determine the flexible budget for indirect labour costs at 90,000 direct labour-hours, we need to use the budgeted variable overhead rate and budgeted fixed overhead cost.

From the information given in the question, we know that the budgeted indirect labour cost at 100,000 direct labour-hours is £90,000.

Budgeted variable overhead rate = Total budgeted manufacturing overhead cost / Total budgeted direct labour-hours 
= (£144,000 + £90,000) / 100,000 = £2.34 per direct labour-hour

Budgeted fixed overhead cost = Total budgeted manufacturing overhead cost - Total budgeted variable overhead cost 
= £234,000 - (£2.34 x 100,000) = £234,000 - £234,000 = £0

Flexible budget for indirect labour costs at 90,000 direct labour-hours = 
(Budgeted variable overhead rate x Actual direct labour-hours) + Budgeted fixed overhead cost 
= (£2.34 x 90,000) + £0 
= £210,600

Therefore, the correct answer is D) £81,000.

Wicks Company Has Established a Flexible Budget for Manufacturing Overhead