Problem 22-2A (Part Level Submission) Variable costs Rate per Direct Labor Hour

Question

Problem 22-2A (Part Level Submission)

Variable costs

Rate per Direct
Labor Hour

Annual Fixed Costs

(a) & (b)

(a) Prepare a monthly manufacturing overhead flexible budget for the year ending December 31, 2017, assuming production levels range from 35,000 to 52,400 direct labor hours. Use increments of 5,800 direct labor hours. (List variable costs before fixed costs.)

(b) Prepare a budget report for June comparing actual results with budget data based on the flexible budget. (List variable costs before fixed costs.)

Problem 22-2A (Part Level Submission)

Zelmer Company manufactures tablecloths. Sales have grown rapidly over the past 2 years. As a result, the president has installed a budgetary control system for 2017. The following data were used in developing the master manufacturing overhead budget for the Ironing Department, which is based on an activity index of direct labor hours.

Variable costs

Rate per Direct
Labor Hour

Annual Fixed Costs

Indirect labor $0.42 Supervision $46,800 Indirect materials 0.55 Depreciation 16,920 Factory utilities 0.32 Insurance 14,760 Factory repairs 0.20 Rent 28,080
The master overhead budget was prepared on the expectation that 479,200 direct labor hours will be worked during the year. In June, 46,100 direct labor hours were worked. At that level of activity, actual costs were as shown below.

Variable—per direct labor hour: indirect labor $0.44, indirect materials $0.54, factory utilities $0.35, and factory repairs $0.24.

Fixed: same as budgeted.

Explanation / Answer

Ans.1 ZELMER COMPANY Monthly Manufacturing overhead Flexible budget For the year ended Dec 31, 2017 Direct labor hours 35000 40800 46600 52400 Variable costs: Indirect labor 14700 17136 19572 22008 Indirect material 19250 22440 25630 28820 Favtory utilities 11200 13056 14912 16768 Factory Repairs 7000 8160 9320 10480 Total Variable costs (A) 52150 60792 69434 78076 Fixed Costs: Supervision 3900 3900 3900 3900 Depreciation 1410 1410 1410 1410 Insurance 1230 1230 1230 1230 Rent 2340 2340 2340 2340 Total fixed costs(B) 8880 8880 8880 8880 Total costs (A+B) 61030 69672 78314 86956 Direct labor hours   35000 (35000+5800) = 40800 (40800+5800) = 46600 (46600+5800) = 52400 *Variable costs =   Budgeted Variable cost per unit * Direct labor hours Eg. 35000 40800 46600 52400 Indirect labor 0.42*35000 0.42*40800 0.42*46600 0.42*52400 Monthly fixed cost = Annual fixed cost / 12 Eg. Supervision 46800 / 12 = 3900 *Fixed cost does not change on any activity level. Ans.2 ZELMER COMPANY Manufacturing overhead Flexible budget Performance Report For the year ended Dec 31, 2017 Actual results Flexible budget Variance Fav./Unf. Direct labor hours 46100 46100 Variable costs: Indirect labor 20284 19362 922 U Indirect material 24894 25355 461 F Favtory utilities 16135 14752 1383 U Factory Repairs 11064 9220 1844 U Total Variable costs (A) 72377 68689 3688 U Fixed Costs: Supervision 3900 3900 0 no effect Depreciation 1410 1410 0 no effect Insurance 1230 1230 0 no effect Rent 2340 2340 0 no effect Total fixed costs(B) 8880 8880 0 no effect Total costs (A+B) 81257 77569 3688 U *Calculations for flexible budget and actual results: Variable costs: Indirect labor 0.44*46100 0.42*46100 Indirect material 0.54*46100 0.55*46100 Favtory utilities 0.35*46100 0.32*46100 Factory Repairs 0.24*46100 0.20*46100 *Fixed cost does not change on any activity level.

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