Malone Company estimates that 360,000 direct labor hours will be worked during t
ID: 2442181 • Letter: M
Question
Malone Company estimates that 360,000 direct labor hours will be worked during the coming year, 2008, in the Packaging Department. On this basis, the following budgeted manufacturing overhead cost data are computed for the year.Fixed Overhead Costs Variable Overhead Costs
Supervision $90,000 Indirect labor $126,000 Depreciation 60,000 Indirect materials 90,000
Insurance 30,000 Repairs 54,000
Rent 24,000 Utilities 72,000
Property taxes 18,000 Lubricants 18,000 $222,000 $360,000
It is estimated that direct labor hours worked each moth will range from 27,000 to 36,000 hours.
During October, 27,000 direct labor hours were worked and the following overhead costs were incurred.
Fixed overhead costs: Supervision $7,500, Depreciation $5,000, Insurance $2,470, Rent $2,000 and Property taxes $1.500.
Variable overhead costs: Indirect labor $10,360, Indirect materials, $6,400, Repairs $4,000, Utilities $5,700, and Lubricants $1,640.
Instructions:
(a) Prepare a monthly manufacturing overhead flexible budget for each increment of 3,000 direct labor hours over the relevant range for the year ending December 31, 2008.
(b) Prepare a flexible budget report of October.
(c) Comment on management's efficiency in controlling manufacturing overhead costs in October.
Explanation / Answer
27000 Hours 30000 Hours 33000 Hours 36000 Hours a Variable OH 27,000.00 30,000.00 33,000.00 36,000.00 Fixed OH : Supervision 7,500.00 7,500.00 7,500.00 7,500.00 Depreciation 5,000.00 5,000.00 5,000.00 5,000.00 Insurance 2,500.00 2,500.00 2,500.00 2,500.00 Rent 2,000.00 2,000.00 2,000.00 2,000.00 Property Taxes 1,500.00 1,500.00 1,500.00 1,500.00 Total Overheads 45,500.00 48,500.00 51,500.00 54,500.00 Working Notes : Variable Overheads : Indirect Labor 126,000.00 Indirect Material 90,000.00 Repairs 54,000.00 Utilities 72,000.00 Lubricants 18,000.00 Total Variable Overhead 360,000.00 Budgeted Direct Labor hours 360,000.00 Variable OH per hour 1.00 Fixed Overheads will remain same at all levels of activities. They have been divided by 12 to get the FOH per month. b Flexible Over Head for the month of October Variable OH(27,000 *1 ) 27,000.00 Fixed OH : Supervision 7,500.00 Depreciation 5,000.00 Insurance 2,500.00 Rent 2,000.00 Property Taxes 1,500.00 Total Fixed Over Heads 18,500.00 Total Over Heads 45,500.00 c Actual Over Heads for the month of October : Variable OH Indirect Labor 10,360.00 Indirect Material 6,400.00 Repairs 4,000.00 Utilities 5,700.00 Lubricants 1,640.00 Total Variable Overhead 28,100.00 Fixed Over Heads : Supervision 7,500.00 Depreciation 5,000.00 Insurance 2,470.00 Rent 2,000.00 Property Taxes 1,500.00 Total Fixed Over Heads 18,470.00 The mangement has achieved effeciency in controlling Fixed Overhead but not Variable Over heads
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