Webb, Inc. uses a flexible budget for manufacturing overhead based on machine ho

Question

Webb, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows:

The company believes it will normally operate in a range of 4,000 to 8,000 machine hours per month. During the month of August, 2013, the company incurs the following manufacturing overhead costs:

Prepare a flexible budget report, assuming that the company used 6,000 machine hours during August. (List variable costs before fixed costs.)

Indirect labor $5.00 Indirect materials 2.50 Maintenance .50 Utilities .30 Fixed overhead costs per month are: Supervision $1,200 Insurance 400 Property taxes 600 Depreciation 1,800

Explanation / Answer

WEBB, INC. Manufacturing Overhead Budget Report For the Month Ended August 31, 2013 Budget at 6000 Hrs - Actual at 6000 Hrs = Difference Working Favourable (F) Unfavourable (U) Not Applicable (NA) Indirect labour 6000*5 a 30,000 28,000 2000 F Indirect Materials 6000*2.5 b 15,000 16,200 1200 U Maintenance 6000*.5 c 3,000 2,800 200F Utilities 6000*.3 d 1,800 1,900 100 U Supervision e 1,200 1,440 240 U Insurance f 400 400 NA Property taxes g 600 600 NA Depreciation h 1,800 1,860 60 U Total Variable cost i=a+b+c+d 49,800 48,900 900 F Total Fixed Cost j=e+f+g+h 4,000 4,300 300 U Total Cost i+j 53,800 53,200 600 F

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