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

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 $ 4,500 , Depreciation $ 1,500 , and Property Taxes $ 700 . The company believes it will normally operate in a range of 6,100 – 10,600 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 9,100 direct labor hours during the month.

(b) Prepare a flexible budget performance report, assuming that the company worked 8,600 direct labor hours during the month.

Explanation / Answer

Myers Company All Amounts in $ (a) Flexible Budget Performance Report - Based on 9,100 Labor Hours worked Particulars Budget Actual Variance Variable Overheads Indirect labor 11830 11560 270 Indirect materials 5460 5290 170 Utilities 2730 2280 450 20020 19130 890 Fixed Overheads Supervision 4500 4500 0 Depreciation 1500 1500 0 Property taxes 700 700 0 6700 6700 0 Total Overheads 26720 25830 890 (b) Flexible Budget Performance Report - Based on 8,600 Labor Hours worked Particulars Budget Actual Variance Variable Overheads Indirect labor 11180 11560 -380 Indirect materials 5160 5290 -130 Utilities 2580 2280 300 18920 19130 -210 Fixed Overheads Supervision 4500 4500 0 Depreciation 1500 1500 0 Property taxes 700 700 0 6700 6700 0 Total Overheads 25620 25830 -210

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