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

Question

Thome 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 $3,914, depreciation $1,575, and property taxes $730. The company believes it will normally operate in a range of 5,900–10,100 direct labor hours per month.

Prepare a monthly manufacturing overhead flexible budget for 2014 for the expected range of activity, using increments of 1,400 direct labor hours.

Indirect labor $1.40 Indirect materials 0.80 Utilities 0.40

Explanation / Answer

Income summary

Activity level Direct labor hours 5900 7300 8700 10,100 Variable costs: Indirect labor @1.40 $8260 $10,220 $12,180 $14,140 Indirect material @.80 4720     5840    6960     8080 Utilties @.40 2360    2920    3480     4040 Total variable cost 15,340 18,980 22,620 26,260 Fixed cost Supervision 3,914 3914 3,914 3,914 Depreciation 1,575 1575 1575 1575 Property tax    730 730 730 730 total fixed cost 6219 6219 6219 6219 Total cost 21,559 25,199 28,839 32,479

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