Question

Newcastle Bakery produces bread for resale at grocery stores in the region. In Newcastle's master budget, figures indicate that the company expects to use 2.5 pounds of direct materials for each unit produced at a cost of $5.00 per pound (one unit = one loaf of bread). Each unit produced will require 0.30 direct labor hours at a cost of $12.00 per hour. Variable manufacturing overhead is applied based on direct labor hours at a rate of $2.40 per hour. Last year's sales were expected to total 40,000 units. Newcastle just received last year's actual results showing sales of 35,000 units. What amount would the flexible budget show for direct materials?

a) $437,500

b) $175,000

c) $70,000

d) $500,000

Answer 1