Myers Company uses a flexible budget for manufacturing overhead based on direct

Question

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.

Fixed overhead costs per month are Supervision $ 3,600 , Depreciation $ 1,000 , and Property Taxes $ 900 . The company believes it will normally operate in a range of 8,000 – 13,700 direct labor hours per month.

Assume that in July 2017, Myers Company incurs the following manufacturing overhead costs.

Variable Costs

Fixed Costs

(a) Prepare a flexible budget performance report, assuming that the company worked 11,800 direct labor hours during the month. (List variable costs before fixed costs.)

(b) Prepare a flexible budget performance report, assuming that the company worked 11,200 direct labor hours during the month.

Explanation / Answer

1 Budget Actual Difference Direct labor hours 11800 11800 Variable costs: Indirect labor 14160 13920 240 F Indirect materials 9440 9320 120 F Utilities 4720 4240 480 F Total variable costs 28320 27480 840 F Fixed costs: Supervision 3600 3600 0 None Depreciation 1000 1000 0 None Property taxes 900 900 0 None Total fixed costs 5500 5500 0 None Total costs 33820 32980 840 F 2 Budget Actual Difference Direct labor hours 11200 11200 Variable costs: Indirect labor 13440 13920 480 U Indirect materials 8960 9320 360 U Utilities 4480 4240 -240 U Total variable costs 26880 27480 600 U Fixed costs: Supervision 3600 3600 0 None Depreciation 1000 1000 0 None Property taxes 900 900 0 None Total fixed costs 5500 5500 0 None Total costs 32380 32980 600 U

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