Exercise 14-4 Marigold Company uses a flexible budget for manufacturing overhead

Question

Exercise 14-4 Marigold 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 $1.00 0.70 0.40 Fixed overhead costs per month are Supervision $4,200, Depreciation $1,800, and Property Taxes $600. The company believes it will normally operate in a range of 7,000-13,000 direct labor hours per month. Assume that in July 2017, Marigold Company incurs the following manufacturing overhead costs. Variable Costs Fixed Costs Indirect labor Indirect materials Utilities $4,200 1,800 600 $10,760 Supervision 7,520 Depreciation 3,950 Property taxes

Explanation / Answer

Ans.1 MARIGOLD COMPANY Manufacturing overhead Flexible Budget Report Budget Actual cost Difference F/U Direct labor hours 11000 11000 Variable costs : Indirect labor (1) 11000 10760 240 F Indirect materials (0.70) 7700 7520 180 F Utilities (0.40) 4400 3950 450 F Total variable cost 23100 22230 870 F Fixed costs: 0 Supervision 4200 4200 0 Depreciation 1800 1800 0 Property taxes 600 600 0 Total Fixed cost 6600 6600 0 Total Costs 29700 28830 870 F Ans.2 MARIGOLD COMPANY Manufacturing overhead Flexible Budget Report Budget Actual cost Difference F/U Direct labor hours 10300 10300 Variable costs : Indirect labor (1) 10300 10760 -460 U Indirect materials (0.70) 7210 7520 -310 U Utilities (0.40) 4120 3950 170 F Total variable cost 21630 22230 -600 U Fixed costs: 0 Supervision 4200 4200 0 Depreciation 1800 1800 0 Property taxes 600 600 0 Total Fixed cost 6600 6600 0 Total Costs 28230 28830 -600 U *If the actual cost is greater than budgeted cost it means it is unfavourable. *If the actual cost is less than budgeted cost it means it is favourable.

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