Thome Company uses a flexible budget for manufacturing overhead based on direct
ID: 2381443 • Letter: T
Question
Thome Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
Fixed overhead costs per month are: Supervision $4,000, Depreciation $1,200, and Property Taxes $800. The company believes it will normally operate in a range of 7,00010,000 direct labor hours per month.
Assume that in July 2014, Thome Company incurs the following manufacturing overhead costs.
Comment on the findings of manufacturing overhead flexible budget report using the two different direct labor hours presented in Exercise 10-4.
Explanation / Answer
Manufacutring over Flexible Budget
Activity level 7,000 8,000 9,000 10,000
Variable cost
Indirect labor 7,000 8,000 9,000 10,000
Indirect material 4,200 4,800 5,400 6,000
Utilities 2,800 3,200 3,600 4,000
Fixed costs:
Supervision 4,000
Depreciation 1,200
Proporty taxes 800
Total fixed costs 6,000 6000 6,000 6,000
Total costs 20,000 22,000 24,000 26,000
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