Question

11. At Stolen Horse Corporation, indirect labor is a variable cost that varies with direct labor hours. Last month's flexible budget performance report showed that actual indirect labor cost totaled $2,056 for the month and 5,140 direct labor hours were actually worked. The report also showed the spending variance for indirect labor was $257 unfavorable and the activity variance for indirect labor was $28 favorable. What was the amount of direct labor hours Stolen Horse budgeted for last month?

Answer 1

5,220 hours

Step-by-step explanation:

Lets summarize the information first,

Actual Hours = 5,140

Actual Indirect labor cost = $2,056

Spending Variance = $257 Unfavorable

Activity Variance = $28 Favorable

We can reverse work for budgeted labor hours, first for the standard rate,

Spending variance = Actual hours * Standard rate/hour - Actual Overheads

-257 = 5140x - 2056

x = (2056-257)/5140

x = 0.35/hour (This is the standard over head rate )

Activity Variance = Standard rate*Standard hrs - Standard rate*Actual Hrs

28 = 0.35y - 0.35*5140

Solving for y,

y = 1827/0.35

y = 5,220

So budgeted hours for Stolen Horse Corporation were = y = 5,220 hours

Hope that helps.