Problem 24-2A Variable costs Rate per Direct Labor Hour Annual Fixed Costs LINK
ID: 3012009 • Letter: P
Question
Problem 24-2A
Variable costs
Rate per Direct
Labor Hour
Annual Fixed Costs
LINK TO TEXT
ZELMER COMPANY
Monthly Manufacturing Overhead Flexible Budget
Ironing Department
For the Year 2014
ZELMER COMPANY
Ironing Department
Manufacturing Overhead Flexible Budget Report
For the Month Ended June 30, 2014
Difference
Budget
Actual Costs
Favorable F
Unfavorable U
Neither Favorable
nor Unfavorable N
LINK TO TEXT
(a) Prepare a monthly manufacturing overhead flexible budget for the year ending December 31, 2014, assuming production levels range from 40,400 to 57,500 direct labor hours. Use increments of 5,700 direct labor hours. (List variable costs before fixed costs.)
(b) Prepare a budget report for June comparing actual results with budget data based on the flexible budget. (List variable costs before fixed costs.)
State the formula for computing the total budgeted costs for Ironing Department. (Round variable cost per unit to 2 decimal places, e.g. $1.55.)
Problem 24-2A
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 2014. 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.Variable costs
Rate per Direct
Labor Hour
Annual Fixed Costs
Indirect labor $0.43 Supervision $45,792 Indirect materials 0.50 Depreciation 15,504 Factory utilities 0.30 Insurance 15,204 Factory repairs 0.23 Rent 25,236The master overhead budget was prepared on the expectation that 478,100 direct labor hours will be worked during the year. In June, 46,700 direct labor hours were worked. At that level of activity, actual costs were as shown below.
Variable—per direct labor hour: Indirect labor $0.47, Indirect materials $0.49, Factory utilities $0.33, and Factory repairs $0.28.
Fixed: same as budgeted.
LINK TO TEXT
Explanation / Answer
Solution:
Activity level
Direct labor hours
Variable costs
Indirect labor ($.40)
Indirect materials ($.50)
Factory utilities ($.30)
Factory repairs ($.20)
Total variable costs ($1.40)
Fixed costs
Supervision
Depreciation
Insurance
Rent
Total fixed costs
Total costs
35,000
$14,000
17,500
10,500
7,000
49,000
3,500
1,500
1,000
2,000
8,000
$57,000
40,000
$16,000
20,000
12,000
8,000
56,000
3,500
1,500
1,000
2,000
8,000
$64,000
45,000
$18,000
22,500
13,500
9,000
63,000
3,500
1,500
1,000
2,000
8,000
$71,000
50,000
$20,000
25,000
15,000
10,000
70,000
3,500
1,500
1,000
2,000
8,000
$78,000
Activity level
Direct labor hours
Variable costs
Indirect labor ($.40)
Indirect materials ($.50)
Factory utilities ($.30)
Factory repairs ($.20)
Total variable costs ($1.40)
Fixed costs
Supervision
Depreciation
Insurance
Rent
Total fixed costs
Total costs
35,000
$14,000
17,500
10,500
7,000
49,000
3,500
1,500
1,000
2,000
8,000
$57,000
40,000
$16,000
20,000
12,000
8,000
56,000
3,500
1,500
1,000
2,000
8,000
$64,000
45,000
$18,000
22,500
13,500
9,000
63,000
3,500
1,500
1,000
2,000
8,000
$71,000
50,000
$20,000
25,000
15,000
10,000
70,000
3,500
1,500
1,000
2,000
8,000
$78,000
b)
Direct labor hours (DLH)
Variable costs
Indirect labor
Indirect materials
Factory utilities
Factory repairs
Total variable costs
Fixed costs
Supervision
Depreciation
Insurance
Rent
Total fixed costs
Total costs
Budget at
42,000 DLH
$16,800 (1)
21,000 (2)
12,600 (3)
8,400 (4)
58,800
3,500
1,500
1,000
2,000
8,000
$66,800
Actual Costs
42,000 DLH
$18,060 (5)
20,580 (6)
13,440 (7)
10,080 (8)
62,160
3,500
1,500
1,000
2,000
8,000
$70,160
Favorable F
Unfavorable U
$1,260 U
420 F
840 U
1,680 U
3,360 U
0 U
0 U
0 U
0 U
0 U
$3,360
d)
The formula is fixed costs of $8,000 plus total variable costs of $1.40 per direct labor hour.
Activity level
Direct labor hours
Variable costs
Indirect labor ($.40)
Indirect materials ($.50)
Factory utilities ($.30)
Factory repairs ($.20)
Total variable costs ($1.40)
Fixed costs
Supervision
Depreciation
Insurance
Rent
Total fixed costs
Total costs
35,000
$14,000
17,500
10,500
7,000
49,000
3,500
1,500
1,000
2,000
8,000
$57,000
40,000
$16,000
20,000
12,000
8,000
56,000
3,500
1,500
1,000
2,000
8,000
$64,000
45,000
$18,000
22,500
13,500
9,000
63,000
3,500
1,500
1,000
2,000
8,000
$71,000
50,000
$20,000
25,000
15,000
10,000
70,000
3,500
1,500
1,000
2,000
8,000
$78,000
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