Question

Waterways Corporation is continuing its budget preparations. Waterways had the following static budget and actual overhead for March. (Refer to Waterways 9 if you are uncertain about variable versus fixed costs.)

                  Waterways Corporation                                                   Waterways Corporation

           Manufacturing Overhead Budget              Manufacturing Overhead Costs (Actual)

           (Static) For the Month of March                                  For the Month of March

Budgeted Production (Units)	118,000		Production in units	118,500
Indirect materials	$ 5,900		Indirect materials	$ 5,910
Indirect labor	14,160		Indirect labor	14,195
Utilities	11,800		Utilities	11,880
Maintenance	8,260		Maintenance	8,275
Salaries	42,000		Salaries	42,100
Depreciation	16,800		Depreciation	16,800
Property taxes	3,000		Property taxes	3,000
Insurance	1,200		Insurance	1,200
Janitorial	1,500		Janitorial	1,650
Total budgeted costs	$104,620		Total costs	$105,010

Waterways produced 118,500 units in March rather than the budgeted number of units.

Instructions:

a. Prepare a flexible budget overhead budget based on the following amounts produced.

            (1) 115,000 units

            (2) 116,000 units

            (3) 117,000 units

            (4) 118,000 units

            (5) 119,000 units

b. Prepare a flexible budget performance report showing the differences (favorable and unfavorable) in manufacturing overhead costs for the month of March.

c. Prepare a responsibility report for the manufacturing overhead for March assuming only variable costs are controllable.

Answer 1

1. Flexible Overhead Budget
Production units			118000	115000	116000	117000	118000	119000
Variable Costs	Ccost/ Unit	Fixed Cost
Indirect Materials	0.05		$5,900	$5,750	$5,800	$5,850	$5,900	$5,950
Indirect Labor	0.12		$14,160	$13,800	$13,920	$14,040	$14,160	$14,280
Utilities	0.1		$11,800	$11,500	$11,600	$11,700	$11,800	$11,900
Maintenance	0.07		$8,260	$8,050	$8,120	$8,190	$8,260	$8,330
Total Variable Costs	0.34		$40,120	$39,100	$39,440	$39,780	$40,120	$40,460
Fixed Costs
Salaries		$42,000	$42,000	$42,000	$42,000	$42,000	$42,000	$42,000
Depreciation		$16,800	$16,800	$16,800	$16,800	$16,800	$16,800	$16,800
Property Taxes		$3,000	$3,000	$3,000	$3,000	$3,000	$3,000	$3,000
Insurance		$1,200	$1,200	$1,200	$1,200	$1,200	$1,200	$1,200
Janitorial		$1,500	$1,500	$1,500	$1,500	$1,500	$1,500	$1,500
Total Fixed Costs		$64,500	$64,500	$64,500	$64,500	$64,500	$64,500	$64,500
Total Cost			$104,620	$103,600	$103,940	$104,280	$104,620	$104,960

b. Performance Report
	Budget	Actual	Variance	Remark
Production units	118500	118500
Variable Costs
Indirect Materials	5925	5910	15	Favourabble
Indirect Labor	14220	14195	25	Favourabble
Utilities	11850	11880	30	Unfavourable
Maintenance	8295	8275	20	Favourabble
Total Variable Costs	40290	40260	30	Favourabble
Fixed Costs
Salaries	$42,000	42100	$100	Unfavourable
Depreciation	$16,800	16800	$0	No Effect
Property Taxes	$3,000	3000	$0	No Effect
Insurance	$1,200	1200	$0	No Effect
Janitorial	$1,500	1650	$150	Unfavourable
Total Fixed Costs	$64,500	$64,750	-$250	Unfavourable
Total Cost	$104,790	$105,010	-$220	Unfavourable

c. Responsibility Report
Controllable Cost	Budget	Actual
Indirect Materials	5925	5910	15	Favourabble
Indirect Labor	14220	14195	25	Favourabble
Utilities	11850	11880	30	Unfavourable
Maintenance	8295	8275	20	Favourabble
Total Variable Costs	40290	40260	30	Favourabble