26. Fagan Company uses a lexible budget for manufacturing overhead based on mach

Question

26. Fagan Company uses a lexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as folDows: Indirect labor Indirect materials $5.00 2.50 .50 30 Utilities Fixed overhead costs per month aue: .._ Supervision 5500 200 Depreciation 900 The company believes it will normally operate in a range of 2,000 to 4,000 machine Incurs the followisg bours per month. During the month of August, 2010, the compeary manafacturing overhead costs: Indirect labor Indirect materials Maintenance Utilities $14,000 8,100 1,400 950 720 200 300 930 Property taxes Prepare a flexible budget report, assuming that the company used 3,000 machine hours during August Instruetions Page 6

Explanation / Answer

Actual Flexible budget Variance Machine hours 3000 3000 variable costs: Indirect labor 14000 15000 1000 Favorable Indirect materials 8100 7500 600 Unfavorable Maintenance 1400 1500 100 Favorable Utilities 950 900 50 Unfavorable Total variable costs 24450 24900 450 Favorable Fixed costs: Supervision 720 600 120 Unfavorable Insurance 200 200 0 None Property taxes 300 300 0 None Depreciation 930 900 30 Unfavorable Total Fixed costs 2150 2000 150 Unfavorable Total costs 26600 26900 300 Favorable

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