Question

Kathleen Corp. produced 320,000 units in 150,000 direct labor hours. Production for the

period was estimated at 330,000 units and 165,000 direct labor hours. A flexible budget
would compare budgeted costs and actual costs, respectively, at
A) 160,000 hours and 165,000 hours.
B) 165,000 hours and 150,000 hours.
C) 160,000 hours and 150,000 hours.
D) 150,000 hours and 150,000 hours

Answer 1

A flexible budget adapts to changes in activity levels , allowing comparisons between actual costs and what costs should be at different levels of activity thus the correct option is :

A) 160,000 hours and 165,000 hours.

Step-by-step explanation:

A flexible budget adapts to changes in activity levels, allowing comparisons between actual costs and what costs should be at different levels of activity. In this case, the flexible budget should compare costs at the originally estimated level of production (330,000 units) and direct labor hours (165,000 hours) against the actual levels achieved (320,000 units and 150,000 hours).

Option A aligns with these figures, comparing the originally budgeted direct labor hours (165,000 hours) to the actual direct labor hours (150,000 hours), ensuring an accurate evaluation of performance against the planned activity levels.

This comparison helps management understand the variances in costs due to differences in production levels and enables better decision-making for future planning and control.