Thome Company uses a flexible budget for manufacturing overhead based on direct

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

Indirect labor Indirect materials Utilities $1.30 0.90 0.40 Fixed overhead costs per month are supervision $3,660, depreciation $1,044, and property taxes $577. The company believes it will normally operate in a range of 7,800-11,400 direct labor hours per month. Assume that in July 2014, Thome Company incurs the following manufacturing overhead costs. Variable Costs Fixed Costs Indirect labor Indirect materials Utilities $3,660 1,044 577 $12,999 Supervision 9,042 Depreciation 3,667 Property taxes

Explanation / Answer

The flexible Budget Performance Report is given below:

THOME COMPANY Manufacturing Overhead Flexible Budget Report for the Month ended July, 2014 Nature of Budget Actual Difference Variance* Activity Level (Direct Labour Hours) 10200 10200 0 (N) Variable Overhead ($) Indirect Labour 13260 12999 261 (U) Indirect Materials 9180 9042 138 (U) Utilities 4080 3667 413 (U)       Total VOH 26520 25708 812 (U) Fixed Overheads ($) Supervision 3660 3660 0 (N) Depreciation 1044 1044 0 (N) Property Taxes 577 577 0 (N)      Total Fixed OH 5281 5281 0 (N) TOTAL MFG OVERHEAD ($) 31801 30989 812 (U) * (U) = unfavourable, (F) = Favourable & (N) = Neither favourable nor unfavourable

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