Question

A department has budgeted monthly manufacturing overhead cost of $540,000 plus $3 per direct labor hour. If a flexible budget report reflects $1,044,000 for total budgeted manufacturing cost for the month, the actual level of activity achieved during the month was: a) 348,000 direct labor hours b) 168,000 direct labor hours c) 528,000 direct labor hours d) Cannot be determined from the information provided

Answer 1

b) 168,000 direct labor hours

Step-by-step explanation:

The computation of the actual level of activity achieved is shown below:

= (Total budgeted manufacturing cost - budgeted monthly manufacturing overhead cost) ÷ (Rate per direct labor hour)

= ($1,044,000 - $540,000) ÷ ($3)

= $504,000 ÷ $3

= 168,000 direct labor hours

Simply we deduct the budgeted monthly manufacturing overhead cost from the total budgeted manufacturing cost and then divide it by the rate per direct labor hour so that the accurate direct labor hours could be computed