Problem 22-2A Variable costs Rate per Direct Labor Hour Annual Fixed Costs ZELME

Question

Problem 22-2A

Variable costs

Rate per Direct
Labor Hour

Annual Fixed Costs

ZELMER COMPANY
Monthly Manufacturing Overhead Flexible Budget
Ironing Department
For the Year 2014

LINK TO TEXT

ZELMER COMPANY
Ironing Department
Manufacturing Overhead Flexible Budget Report
For the Month Ended June 30, 2014

Difference

Budget

Actual Costs

Favorable (F)
Unfavorable (U)
Neither Favorable
nor Unfavorable (N)

LINK TO TEXT

Problem 22-2A

Zelmer Company manufactures tablecloths. Sales have grown rapidly over the past 2 years. As a result, the president has installed a budgetary control system for 2014. The following data were used in developing the master manufacturing overhead budget for the Ironing Department, which is based on an activity index of direct labor hours.

Variable costs

Rate per Direct
Labor Hour

Annual Fixed Costs

Indirect labor $0.42 Supervision $47,028 Indirect materials 0.55 Depreciation 16,416 Factory utilities 0.31 Insurance 17,436 Factory repairs 0.23 Rent 30,708
The master overhead budget was prepared on the expectation that 479,800 direct labor hours will be worked during the year. In June, 44,370 direct labor hours were worked. At that level of activity, actual costs were as shown below.

Variable—per direct labor hour: indirect labor $0.46, indirect materials $0.54, factory utilities $0.33, and factory repairs $0.29.

Fixed: same as budgeted.

Explanation / Answer

1)

2)

3)

Total variable cost per direct labour hours = Total variable costs / 44370 hours = $66999 / 44370 hours = $1.51/direct labour hour

Cost formula

= Total Fixed cost + variable cost per direct labour hour x number of labour hours

= $111588 + $1.51 x number of labour hours used

ZELMER COMPANY Monthly Manufacturing Overhead Flexible Budget Ironing Department For the Year 2014 Activity level (labour hours) Costs 42600 47200 51800 56400 Variable costs Indirect labour $     17,892 $     19,824 $     21,756 $     23,688 Indirect Materials $     23,430 $     25,960 $     28,490 $     31,020 Factory Utilities $     13,206 $     14,632 $     16,058 $     17,484 Factory Repairs $       9,798 $     10,856 $     11,914 $     12,972 (a) Total Varaible cost $     64,326 $     71,272 $     78,218 $     85,164 Supervision $     47,028 $     47,028 $     47,028 $     47,028 Depreciation $     16,416 $     16,416 $     16,416 $     16,416 Insurance $     17,436 $     17,436 $     17,436 $     17,436 Rent $     30,708 $     30,708 $     30,708 $     30,708 (b) Total Fixed Cost $ 1,11,588 $ 1,11,588 $ 1,11,588 $ 1,11,588 Total Cost (a + b) $ 1,75,914 $ 1,82,860 $ 1,89,806 $ 1,96,752

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