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 Indirect materials Utilities $1.20 0.80 0.40 Fixed overhead costs per month are Supervision $3,500, Depreciation $1,300, and Property Taxes $700. The company believes it will normally operate in a range of 5.500-8.500 direct labor hours per month Assume that in July 2020. Myers Company incurs the following manufacturing overhead costs. Fixed Costs Variable Costs Indirect labor $8,720 Indirect materials 5.830 Utilities 2.590 Supervision Depreciation Property taxes $3.500 1.300 700 (a) Prepare a flexible budget performance report, assuming that the company worked 7.500 direct labor hours during the month. (List variable costs before fixed costs.) MYERS COMPANY Manufacturing Overhead Flexible Budget Report For the Month Ended July 31, 2020 Difference Favorable Unfavorable Neither Favorable nor Unfavorable Budget Actual Costs

Answer 1

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a.			Budget	Actual costs	Differences
	Direct labor hours	(q)	7,500	7,500	-	Neither favorable nor unfavorable
	Variable costs:
	Indirect labor	1.20 q	$    9,000	$    8,720	$          280	Favorable
	Indirect material	0.80 q	$    6,000	$    5,830	$          170	Favorable
	Utilities	0.40 q	$    3,000	$    2,590	$          410	Favorable
	Total Variable cost		$ 18,000	$ 17,140	$          860	Favorable
	Fixed costs
	Supervision		$    3,500	$    3,500	$              -	Neither favorable nor unfavorable
	Depreciation		$    1,300	$    1,300	$              -	Neither favorable nor unfavorable
	Property taxes		$        700	$        700	$              -	Neither favorable nor unfavorable
	Total Fixed costs		$    5,500	$    5,500	$              -	Neither favorable nor unfavorable
	Total costs		$ 23,500	$ 22,640	$          860	Favorable
b.			Budget	Actual costs	Differences
	Direct labor hours	(q)	6,800	6,800	-	Neither favorable nor unfavorable
	Variable costs:
	Indirect labor	1.20 q	$    8,160	$    8,720	$          560	Unfavorable
	Indirect material	0.80 q	$    5,440	$    5,830	$          390	Unfavorable
	Utilities	0.40 q	$    2,720	$    2,590	$          130	Favorable
	Total Variable cost		$ 16,320	$ 17,140	$          820	Unfavorable
	Fixed costs
	Supervision		$    3,500	$    3,500	$              -	Neither favorable nor unfavorable
	Depreciation		$    1,300	$    1,300	$              -	Neither favorable nor unfavorable
	Property taxes		$        700	$        700	$              -	Neither favorable nor unfavorable
	Total Fixed costs		$    5,500	$    5,500	$              -	Neither favorable nor unfavorable
	Total costs		$ 21,820	$ 22,640	$          820	Unfavorable