Question

At the beginning of the period, the sealing department budgeted direct labor of 18,400 and property tax of 45,000 for 800 hours of production. The department actually completed 1,100 hours of production. Determine the budget for the department, assuming that it uses flexible budgeting.

Answer 1

The new flexible budget for the sealing department, with 1,100 hours of production, is $70,300, consisting of $25,300 for direct labor and $45,000 for property tax.

Step-by-step explanation:

When a department uses flexible budgeting, it can adjust its budgeted costs based on the actual level of activity. In this case, we need to determine the new budget for the sealing department based on an increase in production hours from 800 to 1,100.

The original budget for direct labor at 800 hours of production was $18,400. Since direct labor costs are typically variable costs, we can assume that they vary directly with production hours. To get the cost per hour for direct labor, we divide the budgeted amount of $18,400 by 800 hours, resulting in a $23 per hour rate. To find the new budget for direct labor, we multiply this rate by the actual production hours of 1,100, which gives us $25,300.

However, property tax is a fixed cost and does not change with the level of production. The budgeted property tax remains at $45,000 regardless of production hours.

Summing up the new direct labor budget and the fixed property tax, the total budget for the department using flexible budgeting is $70,300 ($25,300 for direct labor plus $45,000 for property tax).