This answer results from dividing the actual direct materials cost incurred during October ($13,000) by the budgeted monthly production level of $12,000 (144,000 ÷ 12), then multiplying the result by the 10,800 actual production level achieved. Since this calculation began with actual incurred cost, it cannot be the flexible budget amount.
This is the actual indirect materials cost. Indirect materials costs are variable costs. Therefore, the total cost of indirect materials fluctuates with the level of production. See the correct answer for a complete explanation.
Indirect materials costs are variable costs. Therefore, the total cost of indirect materials fluctuates with the level of production. According to the master budget, the per unit cost of indirect material is $1.25 ($180,000 ÷ 144,000). Therefore, given an actual production of 10,800 units, the flexible budget costs for indirect material in October would be $13,500 ($1.25 × 10,800).
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