A Company uses a flexible budget for its indirect manufacturing costs. For 2015,
ID: 2487611 • Letter: A
Question
A Company uses a flexible budget for its indirect manufacturing costs. For 2015, the company anticipated that it would produce 27,000 units with 4,800 machine-hours and 8,000 employee days. The costs and cost drivers were to be as follows:
Fixed Variable Cost driver
Product handling $45,000 $0.75 per unit
Inspection 12,000 12.00 per 100 unit batch
Utilities 600 6.00 per 100 unit batch
Maintenance 1,250 0.25 per machine-hour
Supplies 5.00 per employee day
During the year, the company processed 26,500 units, worked 8,200 employee days, and had 4,850 machine-hours. The actual costs for 2015 were: Actual costs
Product handling $65,000
Inspection 16,200
Utilities 2,220
Maintenance 2,850
Supplies 39,900
1.Prepare the static budget using the overhead items above and then compute the static-budget variances.
2. Prepare the flexible budget using the overhead items above and then compute the flexible-budget variances.
Explanation / Answer
1.
Overhead static budget with variances
Actuals
Static budget
Variances
Production (units)
26500
27000
Machine hours
4850
4800
Employee days
8200
8000
Product handling
$ 65,000
$45,000 + ($0.75*27000 units)
$ 65,250
$ 250
F
Inspection
$ 16,200
$12,000 + ($12 * 270 batches)
$ 15,240
$ 960
U
Utilities
$ 2,220
$600 + ($6* 270 batches)
$ 2,220
$ 0
Maintenance
$ 2,850
$1,250 + ($0.25 * 4800 machine hours)
$ 2,450
$ 400
U
Supplies
$ 39,900
$5* 8000 employee days
$ 40,000
$ 100
F
Total
$ 126,170
$ 125,160
$ 1,010
U
2.
Overhead flexible budget with variances
Actuals
Static budget
Variances
Production (units)
26500
26500
Machine hours
4850
4850
Employee days
8200
8200
Product handling
$ 65,000
$45,000 + ($0.75*26500 units)
$ 64,875
$ 125
U
Inspection
$ 16,200
$12,000 + ($12 * 265 batches)
$ 15,180
$ 1,020
U
Utilities
$ 2,220
$600 + ($6* 265 batches)
$ 2,190
$ 30
U
Maintenance
$ 2,850
$1,250 + ($0.25 * 4850 machine hours)
$ 2,463
$ 388
U
Supplies
$ 39,900
$5* 8200 employee days
$ 41,000
$ 1,100
F
Total
$ 126,170
$ 125,708
$ 463
U
Overhead static budget with variances
Actuals
Static budget
Variances
Production (units)
26500
27000
Machine hours
4850
4800
Employee days
8200
8000
Product handling
$ 65,000
$45,000 + ($0.75*27000 units)
$ 65,250
$ 250
F
Inspection
$ 16,200
$12,000 + ($12 * 270 batches)
$ 15,240
$ 960
U
Utilities
$ 2,220
$600 + ($6* 270 batches)
$ 2,220
$ 0
Maintenance
$ 2,850
$1,250 + ($0.25 * 4800 machine hours)
$ 2,450
$ 400
U
Supplies
$ 39,900
$5* 8000 employee days
$ 40,000
$ 100
F
Total
$ 126,170
$ 125,160
$ 1,010
U
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