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 $1.30 Indirect materials 0.70 Utilities 0.40 Fixed overhead costs per month are Supervision $4,500, Depreciation $1,000, and Property Taxes $700. The company believes it will normally operate in a range of 6,300–11,100 direct labor hours per month. Assume that in July 2020, Myers Company incurs the following manufacturing overhead costs. Variable Costs Fixed Costs Indirect labor $12,140 Supervision $4,500 Indirect materials 6,470 Depreciation 1,000 Utilities 3,370 Property taxes 700

(a) Prepare a flexible budget performance report, assuming that the company worked 9,500 direct labor hours during the month. (List variable costs before fixed costs.)

(b) Prepare a flexible budget performance report, assuming that the company worked 8,700 direct labor hours during the month. (List variable costs before fixed costs.)

Answer 1

Monthly Manufacturing Flexible Budget Report
For the Month ended July 31 2020
	Budget	Actual	Difference
Direct labor hours	9500	9500
Variable costs
Indirect labor	12350	12140	210	Favorable
Indirect materials	6650	6470	180	Favorable
Utilities	3800	3370	430	Favorable
Total variable cost	22800	21980	820	Favorable
Fixed costs
Supervision	4500	4500	0	Neither Favorable nor Unfavorable
Depreciation	1000	1000	0	Neither Favorable nor Unfavorable
Property taxes	700	700	0	Neither Favorable nor Unfavorable
Total fixed costs	6200	6200	0	Neither Favorable nor Unfavorable
Total costs	29000	28180	820	Favorable
b
Monthly Manufacturing Flexible Budget Report
For the Month ended July 31 2020
	Budget	Actual	Difference
Direct labor hours	8700	8700
Variable costs
Indirect labor	11310	12140	830	Unfavorable
Indirect materials	6090	6470	380	Unfavorable
Utilities	3480	3370	110	Favorable
Total variable cost	20880	21980	1100	Unfavorable
Fixed costs
Supervision	4500	4500	0	Neither Favorable nor Unfavorable
Depreciation	1000	1000	0	Neither Favorable nor Unfavorable
Property taxes	700	700	0	Neither Favorable nor Unfavorable
Total fixed costs	6200	6200	0	Neither Favorable nor Unfavorable
Total costs	27080	28180	1100	Unfavorable