Question

5. LL Jean’s makes and sells jeans. Each pair of jeans takes 2.7 hours of direct labor to hand stich and customize at the rate of $23.00 per direct labor-hour.

The company plans to sell 46,000 jeans in September for the back to school rush. LL Jean’s finished goods inventory on September 1 is budgeted to be 580 pairs of jeans and September 30 is budgeted to be 140 jeans. Budgeted direct labor costs for September would be:

A. $1,050,500

B. $2,829,276

C. $2,848,026

D. $2,866,776

6. Eye Spy, an eye clinic basis its activity on patient-visits. Last month, Eye Spy had 1,100 patients and had a budgeted level of activity of 1,110 patient. To determine administrative expenses, Eye Spy uses the cost formula of $3.50 per patient plus fixed admin expenses of $19,500 per month. Last month, admin expenses totaled $20,800. Eye Spy’s flexible budget performance report for last month, the spending variance for administrative expenses was:

A. $2,550 F

B. $970 F

C. $35 F

D. $2,585 F

Answer 1

5
Units to be sold	46000
Add: Desired September 30 inventory	140
Less: Budgeted September 1 inventory	-580
Units to be produced	45560
Units to be produced	45560
X Hours per unit	2.7
X Rate direct labor-hour	23.00
Budgeted direct labor costs for September	2829276
Option B $2,829,276 is correct
6
Actual administrative expenses	20800
Less: Administrative expenses in flexible budget	23350	=19500+(1100*3.50)
Spending variance for administrative expenses	2550	F
Option A $2,550 F is correct