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. Indirect labor $1.00 Indirect materials 0.50 Utilities 0.40
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.

Instructions:
Prepare a monthly manufacturing overhead flexible budget for 2008 for the expected range of activity, using increments of 1,000 direct labor hours.

Explanation / Answer

Monthly Manufacturing Overhead Flexible Budget Activity level Direct Labour hours 7,000 8,000 9,000 10,000 Variable costs: Indirect materials 3,500.00 4,000.00 4,500.00 5,000.00 Indirect labor 7,000.00 8,000.00 9,000.00 10,000.00 Utilities 2,800.00 3,200.00 3,600.00 4,000.00 Total variable costs 13,300.00 15,200.00 17,100.00 19,000.00 Fixed Costs Supervision 4,000.00 4,000.00 4,000.00 4,000.00 Depreciation 1,500.00 1,500.00 1,500.00 1,500.00 Property taxes 800.00 800.00 800.00 800.00 Total fixed costs 6,300.00 6,300.00 6,300.00 6,300.00 Total costs 19,600.00 21,500.00 23,400.00 25,300.00 Fixed costs are same at all level of activity.

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