Zelmer Company manufactures tablecloths. Sales have grown rapidly over the past

Question

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. Rate per Direct Indirect labor Indirect materials Factory utilities Factory repairs $40,800 14,400 12,000 22,800 $0.40 Supervision 0.50 Depreciation 0.30 Insurance 0.20 Rent The master overhead budget was prepared on the expectation that 475,000 direct labor hours will be worked during the year. In June, 37,000 direct labor hours were worked. At that level of activity, actual costs were as shown below variable-per direct labor hour: indirect labor S0.42, indirect materials $0.49, factory utilities $0.32, and factory repairs 0.24. Fixed: same as budgeted (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 47,000 direct labor hours. Use increments of 4,000 direct labor hours. (List variable costs before fixed costs.) ZELMER COMPANY Monthly Manufacturing Overhead Flexible Budget Ironing Department For the Year 2017

Explanation / Answer

Monthly Manufacturing Overhead Flexibe Budget Rate Activity Level Direct labor hours 35,000 39,000 43,000 47,000 Variable costs 0.4 Indirect labor 14000 15600 17200 18800 0.5 Indirect materials 17500 19500 21500 23500 0.3 Factory utilities 10500 11700 12900 14100 0.2 Factory repairs 7000 7800 8600 9400 1.4 Total variable costs 49000 54600 60200 65800 Fixed costs: Supervision 3400 3400 3400 3400 Depreciation 1200 1200 1200 1200 Insurance 1000 1000 1000 1000 Rent 1900 1900 1900 1900 total fixed costs 7500 7500 7500 7500 total costs 56500 62100 67700 73300 b) Manufacturing Overhead Flexible Budget Budgetat Actual cost Favorable F actual Unfavourable U Activity Level 37,000 37,000 Direct labor hours Variable costs 0.42 Indirect labor 14800 15540 740 U 0.49 Indirect materials 18500 18130 370 F 0.32 Factory utilities 11100 11840 740 U 0.24 Factory repairs 7400 8880 1480 U 1.47 Total variable costs 51800 54390 2590 U Fixed costs: Supervision 3400 3400 0 Depreciation 1200 1200 0 Insurance 1000 1000 0 Rent 1900 1900 0 total fixed costs 7500 7500 0 total costs 59300 61890 2590 U c) the formula is = $7,500 + $1.40 per direct labor hour

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