At Mahlon Company, a manufacturer of boats, indirect labor is a variable cost that varies with direct labor-hours. Last month's performance report showed that actual indirect labor cost totaled $5,780 for the month and that the associated spending variance was $245 F. If 24,100 direct labor-hours were actually worked last month, then the flexible budget cost formula for indirect labor must be (per direct labor-hour):

 To calculate the flexible budget cost formula for indirect labor per direct labor-hour, we need to determine the standard cost (or budgeted cost) that Mahlon Company had set for indirect labor per labor-hour. This information can be derived from the actual cost and the spending variance.

A spending variance indicates the difference between the actual cost incurred and the budgeted (or standard) ,cost for the actual level of activity. If the variance is favorable (F), as it is in this case, it means that the actual cost was less than what was budgeted for the actual volume of activity.

Given: - Actual indirect labor cost = $5,780, Spending variance = $245, F (This means the actual cost is $245 less than the budgeted cost) , Actual direct labor-hours = 24,100 hours

To find the budgeted (standard) cost for the actual direct labor-hours, add the favorable variance to the actual cost.

Budgeted cost for actual direct labor-hours = Actual cost + Spending variance

Budgeted cost for actual direct labor-hours = $5,780 + $245 

Budgeted cost for actual direct labor-hours = $6,025

Now, we find the budgeted cost per direct labor-hour by dividing the budgeted cost for actual direct labor-hours by the actual direct labor-hours.

Flexible budget cost formula for indirect labor per direct labor-hour = Budgeted cost for actual direct labor-hours / Actual direct labor-hours

Flexible budget cost formula for indirect labor per direct labor-hour = $6,025 / 24,100 hours Flexible budget cost formula for indirect labor per direct labor-hour = $0.25 per direct labor-hour

So, the flexible budget cost formula for indirect labor at Mahlon Company is approximately $0.25 per direct labor-hour.