Concept explainers
Myers Company uses a flexible budget for manufacturing
Indirect labor | $1.00 |
Indirect materials | 0.70 |
Utilities | 0.40 |
Fixed overhead costs per month are supervision $4,000,
Instructions
Prepare a monthly manufacturing overhead flexible budget for 2017 for the expected range of activity, using increments of 1,000 direct labor hours.
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- Flexible budget for factory overhead Presented below are the monthly factory overhead cost budget (at normal capacity of 5,000 units or 20,000 direct labor hours) and the production and cost data for a month. The predetermined overhead rate is based on normal capacity. Required: 1. Assuming that variable costs will vary in direct proportion to the change in volume, prepare a flexible budget for production levels of 80%, 90%, and 110% of normal capacity. Also determine the predetermined factory overhead rate at each level of volume in both units and direct labor hours. 2. Prepare a flexible budget for production levels of 80%, 90%, and 110%, assuming that variable costs will vary in direct proportion to the change in volume, but with the following exceptions. (Hint: Set up a third category for semi-variable expenses.) a. At 110% of capacity, another supervisor will be needed at a salary of 24,000 annually. b. At 80% of capacity, the repairs expense will drop to one-half of the amount at 100% capacity. c. At 80% of capacity, one part-time maintenance worker, earning 10,000 a year, will be laid off. d. At 110% of capacity, a machine not normally in use and on which no depreciation is normally recorded will be used in production. Its cost was 12,000, it has a 10-year life, and straight-line depreciation will be taken.arrow_forwardDouglas Davis, controller for Marston, Inc., prepared the following budget for manufacturing costs at two different levels of activity for 20X1: During 20X1, Marston worked a total of 80,000 direct labor hours, used 250,000 machine hours, made 32,000 moves, and performed 120 batch inspections. The following actual costs were incurred: Marston applies overhead using rates based on direct labor hours, machine hours, number of moves, and number of batches. The second level of activity (the right column in the preceding table) is the practical level of activity (the available activity for resources acquired in advance of usage) and is used to compute predetermined overhead pool rates. Required: 1. Prepare a performance report for Marstons manufacturing costs in the current year. 2. Assume that one of the products produced by Marston is budgeted to use 10,000 direct labor hours, 15,000 machine hours, and 500 moves and will be produced in five batches. A total of 10,000 units will be produced during the year. Calculate the budgeted unit manufacturing cost. 3. One of Marstons managers said the following: Budgeting at the activity level makes a lot of sense. It really helps us manage costs better. But the previous budget really needs to provide more detailed information. For example, I know that the moving materials activity involves the use of forklifts and operators, and this information is lost when only the total cost of the activity for various levels of output is reported. We have four forklifts, each capable of providing 10,000 moves per year. We lease these forklifts for five years, at 10,000 per year. Furthermore, for our two shifts, we need up to eight operators if we run all four forklifts. Each operator is paid a salary of 30,000 per year. Also, I know that fuel costs about 0.25 per move. Assuming that these are the only three items, expand the detail of the flexible budget for moving materials to reveal the cost of these three resource items for 20,000 moves and 40,000 moves, respectively. Based on these comments, explain how this additional information can help Marston better manage its costs. (Especially consider how activity-based budgeting may provide useful information for non-value-added activities.)arrow_forwardShinto Corp. uses a standard cost system and manufactures one product. The variable costs per product follow: Budgeted fixed overhead costs for the month are $4,000, and Shinto expected to manufacture 2,000 units. Actual production, however, was only 1,800 units. Materials prices were 10% over standard, and labor rates were 5% over standard. Of the factory overhead expense, only 80% was used, and fixed overhead was $100 over budget. The actual variable overhead cost was $4,800. In materials usage, 8% more parts were used than were allowed for actual production by the standard, and 6% more labor hours were used than were allowed. Required: Calculate the materials and labor variances. Calculate the variances for overhead by the four-variance method. (Hint: First compute the fixed and variable overhead rates per hour.)arrow_forward
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