22-3 Thome Company uses a flexible budget for manufacturing overhead based on di

ID: 2473007 • Letter: 2

Question

22-3 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. Indirect labor $1.10 Indirect materials 0.70 Utilities 0.40 Fixed overhead costs per month are supervision $3,518, depreciation $1,694, and property taxes $628. The company believes it will normally operate in a range of 7,100–11,900 direct labor hours per month. Prepare a monthly manufacturing overhead flexible budget for 2014 for the expected range of activity, using increments of 1,600 direct labor hours. (List variable costs before fixed costs.)

THOME COMPANY Monthly Manufacturing Overhead Flexible Budget For the Year 2014

Explanation / Answer

Calculation of manufacuring overhead at 7,100 hours, 8,700 hours, 10,300 hours and 11,900 hours are as follows:

Thome Company

Monthly Manufacturing overhead flexible budget

For the year 2014

Details

7100 hours

8700 hours

10300 hours

11900 hours

Variable cost:

Indirect labour @$1.10

$ 7,810

$ 9,570

$ 11,330

$ 13,090

Indirect material @$0.70

$ 4,970

$ 6,090

$ 7,210

$ 833

Utilities @0.40

$ 2,840

$ 3,480

$ 4,120

$ 4,760

Total variable cost

$ 15,620

$ 19,140

$ 22,660

$ 18,683

Fixed overhead cost

$ 3,518

Depreciation

$ 1,694

Property taxes

$ 628

Total fixed cost

$ 5,840

Total manufacturing cost

$ 21,460

$ 24,980

$ 28,500

$ 24,523