Question

Katie's Creations, Inc. produces leather purses. Katie's controller has developed a static budget for the third quarter, based on 20,000 direct labor hours. During the third quarter of 2019, the actual activity was 22,000 direct labor hours. Data for the third quarter are summarized as follows: Actual costs (22,000 hours) Static budget (20,000 hours) $ 80,000 160,000 Direct materials cost $ 87,000 174,000 Direct labor cost Building rental 48.000 50.000 Total $288,000 $311,000 What is the Katie's flexible budget variance for the third quarter of 2019? Select one: O a. $1,000 u b. $23,000 U c. $23,000 F O d. $1,000 F O e. Nice try Mr. Mac ... none of these.

Answer 1

Correct Answer:

Option B : $ 23,000 U

Working:

	Static Budget	Actual budget	Variance
	(20,000 hours)	(22,000 hours)	(2,000 hours)
Direct Materials cost	$    80,000.00	$    87,000.00	$    7,000.00	U
Direct Labor cost	$ 160,000.00	$ 174,000.00	$ 14,000.00	U
Building rental	$    48,000.00	$    50,000.00	$    2,000.00	U
Total	$ 288,000.00	$ 311,000.00	$ 23,000.00	U

End of answer.

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