Final answer:
A flexible budget for May should reflect direct materials cost calculated based on the per-unit cost derived from the master budget and actual production. The correct amount is $20,000 which is found by multiplying the cost per unit ($1.25) by the actual production volume (16,000 units).
Step-by-step explanation:
To answer the student's query, we need to utilize the concept of a flexible budget to calculate the projected cost of direct materials for the actual production volume. The flexible budget recalculates budgeted amounts of cost based on the actual level of output during the period.
The original master budget projected a direct materials cost of $362,500 for producing 290,000 units. To find the variable cost per unit, we divide the total cost by the total number of units:
Total Direct Materials Cost per Unit = Total Direct Materials Cost / Total Projected Units
Total Direct Materials Cost per Unit = $362,500 / 290,000 units
Total Direct Materials Cost per Unit = $1.25 per unit
Now, we can calculate the flexible budget amount for the actual production volume:
Flexible Budget for Direct Materials = Cost per Unit * Actual Units Produced
Flexible Budget for Direct Materials = $1.25 per unit * 16,000 units
Flexible Budget for Direct Materials = $20,000
So, the correct answer is B. $20,000.