Company assembles all of its products in the Assembly Department. Budgeted cost

Question

Company assembles all of its products in the Assembly Department. Budgeted cost for the operation of this department for the year have been set as follows: COMPANY Budget costs for Assembly Department: Variable costs: Direct materials $900,000 Direct labor 675,000 Utilities 45,000 Indirect labor 67,500 Supplies 22,500 Total variable costs 1,710,000 Fixed costs: Insurance 8,000 Supervisory Salaries 90,000 Depreciation 160,000 Equipment rental 42,000      Total fixed costs 300,000 Total budgeted costs $2,010,000 Budgeted direct labor-hours 75,000 Part 3: Actual activities and costs: Actual direct labor-hours worked 73,000 Standard direct labor-hours allowed 70,000 Actual variable manufacturing overhead cost incurred $124,100 Actual fixed manufacturing overhead cost incurred 301,600 Since the assembly work is done mostly by hand, operating activity in this department is best measured by direct labor-hours. The cost formulas used to develop the budgeted costs above are valid over a relevant range of 60,000 to 90,000 direct labor-hours per year. Required: 1. Prepare a manufacturing overhead flexible budget for the Assembly Department using increments      of 15,000 direct labor-hours. (The company does not include direct materials and direct labor      costs in the flexible budget.)
Company assembles all of its products in the Assembly Department. Budgeted cost for the operation of this department for the year have been set as follows: COMPANY Budget costs for Assembly Department: Variable costs: Direct materials $900,000 Direct labor 675,000 Utilities 45,000 Indirect labor 67,500 Supplies 22,500 Total variable costs 1,710,000 Fixed costs: Insurance 8,000 Supervisory Salaries 90,000 Depreciation 160,000 Equipment rental 42,000      Total fixed costs 300,000 Total budgeted costs $2,010,000 Budgeted direct labor-hours 75,000 Part 3: Actual activities and costs: Actual direct labor-hours worked 73,000 Standard direct labor-hours allowed 70,000 Actual variable manufacturing overhead cost incurred $124,100 Actual fixed manufacturing overhead cost incurred 301,600 Since the assembly work is done mostly by hand, operating activity in this department is best measured by direct labor-hours. The cost formulas used to develop the budgeted costs above are valid over a relevant range of 60,000 to 90,000 direct labor-hours per year. Required: 1. Prepare a manufacturing overhead flexible budget for the Assembly Department using increments      of 15,000 direct labor-hours. (The company does not include direct materials and direct labor      costs in the flexible budget.)

Explanation / Answer

A flexible budget calculates different expenditure levels for variable costs, depending upon changes in the amount of actual revenue or other activity measures. You input the actual revenues or other activity measures into the flexible budget once an accounting period has been completed, and it generates a budget that is specific to the inputs. you then compare the budget versus actual information for control purposes. The steps needed to construct a flexible budget are: Identify all fixed costs and segregate them in the budget model. Determine the extent to which all variable costs change as activity measures change. Create the budget model, where fixed costs are

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