Problem 24-2A elmer Company manufactures tablecloths. Sales have grown rapidly o
ID: 2557717 • Letter: P
Question
Problem 24-2A elmer 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 Troning Department, which is based on an acivity Index of direct labor hours Rate per Direct ariable costs Labor Hour Annual Fixed Costs ndirest labar Indirect materals Factury utiities Factory repairs 0.40 Supervision 0.54 Depreciation 20,280 0.30 nsurance 0.23 Rent $47,040 12,480 30,000 The master overhead budget was prepared on the expectation that 482,200 direct labor hours will be worked during the year. In June, 43,100 direct labor hours were worked. At that level of activity, actual costs were as shown below. Variable-per direct labor hour: indirett labor 50.42, indirect materials s0.51, factory utiities S0.33, and factory repairs 90.28 Fixed: same as budgeted.Explanation / Answer
Solution:
(a) ZELMER COMPANY
Monthly Manufacturing Overhead Flexible Budget
Ironing Department
For the Year 2017
Activity level
Direct labor hours
40,900
45,100
49,300
53,500
Variable costs
Indirect labor ($0.40)
$ 16,360
$ 18,040
$ 19,720
$ 21,400
Indirect materials ($0.54)
$ 22,086
$ 24,354
$ 26,622
$ 28,890
Factory utilities ($0.30)
$ 12,270
$ 13,530
$ 14,790
$ 16,050
Factory repairs ($0.23)
$ 9,407
$ 10,373
$ 11,339
$ 12,305
Total variable costs ($1.47)
$ 60,123
$ 66,297
$ 72,471
$ 78,645
Fixed costs
Supervision
$ 47,040
$ 47,040
$ 47,040
$ 47,040
Depreciation
$ 20,280
$ 20,280
$ 20,280
$ 20,280
Insurance
$ 12,480
$ 12,480
$ 12,480
$ 12,480
Rent
$ 30,000
$ 30,000
$ 30,000
$ 30,000
Total fixed costs
$ 109,800
$ 109,800
$ 109,800
$ 109,800
Total costs
$ 169,923
$ 176,097
$ 182,271
$ 188,445
(b) ZELMER COMPANY
Ironing Department
Manufacturing Overhead Flexible Budget Report
For the Month Ended June 30, 2017
Difference
Budget
Actual Costs
Favorable F
Unfavorable U
Direct labor hours
43,100
43,100
Variable costs
Indirect labor
$17,240 (1)
$18,102(5)
$862
U
Indirect materials
23,274(2)
21,981(6)
1,293
F
Factory utilities
12,930(3)
14,223(7)
1,293
U
Factory repairs
9,913(4)
12,068(8)
2,155
U
Total variable costs
$ 63,357
$ 66,374
3,017
U
Fixed costs
Supervision
$ 47,040
$ 47,040
0
Depreciation
$ 20,280
$ 20,280
0
Insurance
$ 12,480
$ 12,480
0
Rent
$ 30,000
$ 30,000
0
Total fixed costs
$ 109,800
$ 109,800
0
Total costs
$173,157
$176,174
$3,017
U
Budgeted cost
(1) 43,100X $0.40= $ 17,240
(2) 43,100X $0.54= $ 23,274
(3) 43,100X $0.30= $ 12,930
(4) 43,100X $0.23= $ 9,913
Actual cost
(5) 43,100X $0.42= $ 18,102
(6) 43,100X $0.51= $ 21,981
(7) 43,100X $0.33= $ 14,223
(8) 43,100X $0.28= $ 12,068
The formula for computing the total budgeted cost for the Ironing department
The formula is = $109,800 fixed costs + total variable costs of $1.47 per direct labor hour.
Activity level
Direct labor hours
40,900
45,100
49,300
53,500
Variable costs
Indirect labor ($0.40)
$ 16,360
$ 18,040
$ 19,720
$ 21,400
Indirect materials ($0.54)
$ 22,086
$ 24,354
$ 26,622
$ 28,890
Factory utilities ($0.30)
$ 12,270
$ 13,530
$ 14,790
$ 16,050
Factory repairs ($0.23)
$ 9,407
$ 10,373
$ 11,339
$ 12,305
Total variable costs ($1.47)
$ 60,123
$ 66,297
$ 72,471
$ 78,645
Fixed costs
Supervision
$ 47,040
$ 47,040
$ 47,040
$ 47,040
Depreciation
$ 20,280
$ 20,280
$ 20,280
$ 20,280
Insurance
$ 12,480
$ 12,480
$ 12,480
$ 12,480
Rent
$ 30,000
$ 30,000
$ 30,000
$ 30,000
Total fixed costs
$ 109,800
$ 109,800
$ 109,800
$ 109,800
Total costs
$ 169,923
$ 176,097
$ 182,271
$ 188,445
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