How would you handle this?

[Taurus Babe]

I would talk to her about how it probably made her brother feel, and how she would feel is someone called her a stupid idiot. I know you say she could have use stronger language, but this word is not acceptable in your house just as much as if she had chosen a stronger word to use. Tell her that your family does NOT use that word and it is not acceptable and there are no excuses for calling her brother this. You could go as far as to take something away from her such as a privilege so she knows just how serious you are being about this.