Exercise 22-3 Myers Company uses a flexible budget for manufacturing overhead ba

Question

Exercise 22-3 Myers 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 $1.20 0.70 0.40 Fixed overhead costs per month are Supervision $4,200, Depreciation $1,500, and Property Taxes $800. The company believes it will normally operate in a range of 5,900-9,800 direct labor hours per month Prepare a monthly manufacturing overhead flexible budget for 2017 for the expected range of activity, using increments of 1,300 direct labor hours. (List variable costs before fixed costs.)

Explanation / Answer

Manufacturing Overhead consists of Variable manufacturing overhead and fixed manufactuing overhead.

While making a flexible budget for Units, this is how manufacturing overhead budget for Myers company will look like at different activity levels:

Working Note:

1. Fixed Manufacturing Overhead will remain same at everl level of activity. Expense of Supervision, depreciation and Property taxes will not be impacted because of additional units.

2. Since We need to prepare flexible budget at increment of 1300 units. Four level of activities will be 5900, 7200, 8500, 9800.

3. Variable Manufacturing Overhead varies per unit. As the number of unit will increase, Variable Manufacturing Overhead will increase. But it will remain same per unit manufactured.

Monthly Manufacturing Overhead Flexible Budget Level of Activity 5,900 7,200 8,500 9,800 Per Unit Variable Manufacturing Overhead Indirect Labor 1.2 7,080 8,640 10,200 11,760 Indirect Materials 0.7 4,130 5,040 5,950 6,860 Utilities 0.4 2,360 2,880 3,400 3,920 Total Variable Manufactuing Overhead (1) 13,570 16,560 19,550 22,540 Fixed Manufacturing Overhead Supervision 4,200 4,200 4,200 4,200 Depreciation 1,500 1,500 1,500 1,500 Property Taxes 800 800 800 800 Total Fixed Manufactuing Overhead (2) 6,500 6,500 6,500 6,500 Total Manufacturing Overhead 20,070 23,060 26,050 29,040

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