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. Indirect labor $1.00 Indirect materials 0.50 Utilities 0.20 Fixed overhead costs per month are Supervision $4,500, Depreciation $1,600, and Property Taxes $700. The company believes it will normally operate in a range of 6,400–11,200 direct labor hours per month. Prepare a monthly manufacturing overhead flexible budget for 2017 for the expected range of activity, using increments of 1,600 direct labor hours.

Explanation / Answer

SOLUTION

MYERS COMPANY

Monthly Manufacturing Overhead Flexible Budget

For the Year 2017

Amount ($) Amount ($) Amount ($) Amount ($) Activity level   Direct labor hours 6,400 8,000 9,600 11,200 Variable costs   Indirect labor ($1.00) 6,400 8,000 9,600 11,200   Indirect materials ($0.50) 3,200 4,000 4,800 5,600   Utilities ($0.20) 1,280 1,600 1,920 2,240 Total variable cost ($1.70) (A) 10,880 13,600 16,320 19,040 Fixed costs   Supervision 4,500 4,500 4,500 4,500   Depreciation 1,600 1,600 1,600 1,600   Property taxes 700 700 700 700 Total fixed costs (B) 6,800 6,800 6,800 6,800 Total costs (A+B) 17,680 20,400 23,120 25,840

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