Question

Exercise 25-04 a-b

Sheffield 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 $1.30

Indirect materials 0.80

Utilities 0.30

Fixed overhead costs per month are Supervision $4,300, Depreciation $2,000, and Property Taxes $600. The company believes it will normally operate in a range of 6,100–10,000 direct labor hours per month.

Assume that in July 2020, Sheffield Company incurs the following manufacturing overhead costs.

Variable Costs Fixed Costs Indirect labor

Indirect labor		$11,050		Supervision		$4,300
Indirect materials		6,790		Depreciation		2,000
Utilities		2,180		Property taxes		600

(a) Prepare a flexible budget performance report, assuming that the company worked 8,700 direct labor hours during the month

SHEFFIELD COMPANY Manufacturing Overhead Flexible Budget Report For the Month Ended July 31, 2020
						Difference
		Budget		Actual Costs		Favorable Unfavorable Neither Favorable nor Unfavorable

(b) Prepare a flexible budget performance report, assuming that the company worked 8,100 direct labor hours during the month

SHEFFIELD COMPANY Manufacturing Overhead Flexible Budget Report For the Month Ended July 31, 2020
						Difference
		Budget		Actual Costs		Favorable Unfavorable Neither Favorable nor Unfavorable

Answer 1

Answer-a)-

SHEFFIELD COMPANY
Manufacturing Overhead Flexible Budget Report
For the month ended July 31,2020
Particulars	Flexible Budget	Actual Costs	Variances	Remark
8700 Direct Labor Hours	$	$	$
Variable costs:-
Indirect labor	8700 hours*$1.30 per hour=11310	11050	260	Favorable
Indirect materials	8700 hours*$0.80 per hour=6960	6790	170	Favorable
Utilities	8700 hours*$0.30 per hour=2610	2180	430	Favorable
Total variable costs (a)	20880	20020	860	Favorable
Fixed costs:-
Supervision	4300	4300	0	None
Depreciation	2000	2000	0	None
Property Tax	6000	6000	0	None
Total fixed costs (b)	12300	12300	0	None
Total cost (c=a+b)	33180	32320	860	Favorable

b)-

SHEFFIELD COMPANY
Manufacturing Overhead Flexible Budget Report
For the month ended July 31,2020
Particulars	Flexible Budget	Actual Costs	Variances	Remark
8100 Direct Labor Hours	$	$	$
Variable costs:-
Indirect labor	8100 hours*$1.30 per hour=10530	11050	-520	Unfavorable
Indirect materials	8100 hours*$0.80 per hour=6480	6790	-310	Unfavorable
Utilities	8100 hours*$0.30 per hour=2430	2180	250	Unfavorable
Total variable costs (a)	19440	20020	-580	Unfavorable
Fixed costs:-
Supervision	4300	4300	0	None
Depreciation	2000	2000	0	None
Property Tax	6000	6000	0	None
Total fixed costs (b)	12300	12300	0	None
Total cost (c=a+b)	31740	32320	-580	Unfavorable