Flexible Budget The controller for Muir Company\'s Salem plant is analyzing over
ID: 2650063 • Letter: F
Question
Flexible Budget
The controller for Muir Company's Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting. She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on. Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table.
Type the letter "F" in the last column of the table to indicate a favorable variance. Type the letter "U" to indicate an unfavorable variance. Enter all your answers as positive amounts.
Muir Company Flexible Budget for Overhead
Month
Predicted Overhead
Actual Overhead
Variance
Type ("F" or "U")
January
$
$
$
February
March
April
May
June
July
August
September
October
November
December
Totals
$
$
$
Run a regression equation using only machine hours as the independent variable. Prepare a flexible budget for overhead for the 12 months using the results of this regression equation. (Round the intercept and x-coefficient to the nearest cent and predicted overhead amount to the nearest dollar.)
Type the letter "F" in the last column of the table to indicate a favorable variance. Type the letter "U" to indicate an unfavorable variance. Enter all your answers as positive amounts.
Muir Company Flexible Budget for Overhead
Month
Predicted Overhead
Actual Overhead
Variance
Type ("F" or "U")
January
$
$
$
February
March
April
May
June
July
August
September
October
November
December
Totals
$
$
$
Explanation / Answer
1. Overhead rate = $423,167/13,446 = $31.47
Predicted Actual
Month Overhead Overhead Variance
January.............................. $ 31,470 $ 32,296 $ 826 U
February............................ 29,267 31,550 2,283 U
March................................. 34,617 36,280 1,663 U
April.................................... 33,044 36,867 3,823 U
May..................................... 36,820 36,790 30 F
June................................... 37,764 37,800 36 U
July..................................... 38,865 40,024 1,159 U
August............................... 37,449 39,256 1,807 U
September........................ 33,673 33,800 127 U
October.............................. 38,079 33,779 4,300 F
November......................... 37,984 37,225 759 F
December.......................... 34,113 27,500 6,613 F
Totals............................. $423,145 $423,167 $ 22 U
2. The regression for overhead cost as a function of machine hours gives the following formula:
Overhead cost = $8,699.64 + $23.71 (machine hours)
Predicted Actual
Month Overhead Overhead Variance
January.............................. $ 32,410 $ 32,296 $ 114 F
February............................ 30,750 31,550 800 U
March................................. 34,781 36,280 1,499 U
April.................................... 33,595 36,867 3,272 U
May..................................... 36,440 36,790 350 U
June................................... 37,152 37,800 648 U
July..................................... 37,981 40,024 2,043 U
August............................... 36,915 39,256 2,341 U
September........................ 34,069 33,800 269 F
October.............................. 37,389 33,779 3,610 F
November......................... 37,318 37,225 93 F
December.......................... 34,401 27,500 6,901 F
Totals........................... $423,201 $423,167 $ 34 F
The flexible budget based on machine hours is better than the budget using only the plantwide overhead rate because the flexible budget divides overhead costs into fixed and variable components. This division would at least give the controller the ability to make a rough calculation of the marginal cost of running additional machine hours at the factory. However, the regression equation on which the flexible budget is based is not particularly good (adjusted R2 of 0.345).
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.