Myers Company uses a flexible budget for manufacturing overhead based on direct
ID: 2455170 • Letter: M
Question
Myers 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 $1,200, and Property Taxes $800. The company believes it will normally operate in a range of 7,000–10,000 direct labor hours per month.
Assume that in July 2017, Myers Company incurs the following manufacturing overhead costs.
Variable Costs
Fixed Costs
(a) Prepare a flexible budget performance report, assuming that the company worked 9,000 direct labor hours during the month. (List variable costs before fixed costs.)
MYERS COMPANY
Manufacturing Overhead Flexible Budget Report
For the Month Ended July 31, 2017
Difference
Budget
Actual Costs
Favorable
Unfavorable
Neither Favorable
nor Unfavorable
(b) Prepare a flexible budget performance report, assuming that the company worked 8,500 direct labor hours during the month. (List variable costs before fixed costs.)
MYERS COMPANY
Manufacturing Overhead Flexible Budget Report
For the Month Ended July 31, 2017
Difference
Budget
Actual Costs
Favorable
Unfavorable
Neither Favorable
nor Unfavorable
Explanation / Answer
1) Direct Laour hours are 9000
(AH*AR)-(AH*SR).
If actual spending is less than standard than it is favourable
Flexible Manufacturing Overhead Budget USD$
Indirect Labour
9000
(9000hrs*$1)
8800
(9000 hrs*($8800/9000hrs))
200 Favorable
Indirect Materal
6300
(9000 hrs*.7)
5800
(9000 Hrs*($5800/9000))
500 Favourable
Utilities
3600
(9000hrs*.4)
3200
(9000 hrs*($3200/9000))
400 Favourable
2) Direct Laour hours are 8500
Flexible Manufacturing Overhead Budget USD$
Indirect Labour
8500
(8500hrs*$1)
8800
(8500 hrs*($8800/8500hrs))
(300) Unfavorable
Indirect Materal
5950
(8500 hrs*.7)
5800
(8500 Hrs*($5800/8500))
150 Favourable
Utilities
3400
(8500hrs*.4)
3200
(8500 hrs*($3200/8500))
200 Favourable
Variable overhead spending variance=(AH*AR)-(AH*SR).
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