At the beginning of the period, the Fabricating department budgeted direct labor

Question

At the beginning of the period, the Fabricating department budgeted direct labor of $9, 280 and equipment depreciation of $2, 300 for 640 hours of production. The department actually completed 600 hours of production. Determine the budget for the department, assuming that it uses flexible budgeting. At the beginning of the period, the Fabricating department budgeted direct labor of $9, 280 and equipment depreciation of $2, 300 for 640 hours of production. The department actually completed 600 hours of production. Determine the budget for the department, assuming that it uses flexible budgeting.

Explanation / Answer

Budgeted direct labour = $9,280

Property tax=$2,300 is the fixed cost and this does not differ with the hours of production.

Hours of production = 640.

Cost of direct labour per hour = $9,280/640 = $14.5 per hour

Budget for the department for 600 hours is as follows:

Fixed cost =$2,300 ------------(A)

Direct labour cost = $14.5*600 = $8,700-------------(B)

Total budget = A+B = $11,000.

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