Question

Buy N Large’s master budget calls for the production of 5,000 units of product monthly. The master budget includes indirect marketing labor of $144,000 annually; Buy N Large considers this indirect labor to be a variable cost. During the month of April, 4,500 units of output were produced, and indirect marketing labor costs of $10,100 were incurred. A performance report would show a flexible-budget variance for indirect marketing labor that is closest to:

	a.	$1,900 U
	b.	$1,900 F
	c.	$700 U
	d.	$700 F

Answer 1

Ans.	Option   d    $700 F
	*Calculations and Explanations: Flexible budget variance is the difference between actual cost
	and flexible budget. So we need to calculate the Flexible budget.
	Master budgeted indirect marketing labor   = $144,000 monthly
	Master budgeted indirect marketing labor for the month of April = $144,000 / 12 months = $12,000
	Flexible budget indirect marketing labor = Budgeted indirect labor cost / Budgeted units * Actual units
		$12,000 / 5,000 * 4,500
		$10,800
	Flexible budget variance = Flexible budget - Actual results
		$10,800 - $10,100
		$700 favorable
	*If the actual costs are higher than the budgeted it means the variance is unfavorable.
	*If the actual costs are lower than the budgeted it means the variance is favorable.