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

Question

Raney 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 $4,000, Depreciation $1,500, and Property Taxes $800. The company believes it will normally operate in a range of 7,000-10,000 direct labor hours per month. Use increments of 1,000 direct labor hours. Assume that in July 2010, Raney Company incurs the following manufacturing overhead costs.

Explanation / Answer

RANEY COMPANY
Manufacturing Overhead Flexible Budget Report
For the Month Ended July 31,2010

                                   Budget          Actual          Diff. F / U
Direct labor hours         9,000 DLH    9,000 DLH   
Variable costs             
Indirect labor               $9,000         $8,700           $300 F
Indirect materials        $4,500         $4,300           $200 F
Utilities                      $3,600         $3,200           $400 F
Total variable costs   $17,100        $16,200          $900 F
Fixed costs
Supervision                 $4,000        $4,000                0
Depreciation               $1,500        $1,500                0
Property taxes              $800           $800                0
Total fixed costs         $6,300        $6,300                0

Total costs                $23,400      $22,500           $900 F

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