Question

The polishing department of Taylor Manufacturing Company operated during April 2016 with the following manufacturing overhead cost budget based on 5,000 hours of monthly productive capacity: Taylor Manufacturing Company Polishing Department Overhead Budget (5,000 Hours) For the Month of April 2016 Variable costs Factory supplies Indirect labor Utilities Patent royalties on secret process 100,000 152,000 68,000 296,000 Total variable overhead 616,000 Fixed costs: Supervisory salaries Depreciation on factory equipment Factory taxes Factory insurance Utilities (base charge) 160,000 144,000 48,000 32.000 80,000 464,000 Total fixed overhead $1,080,000 Total manufacturing overhead

please include formulas and steps

Answer 1

Dear Friend,

The Answer is as Follows:

Particulars	Actual Costs	Budget (4700 Hours)	Variance	F/U
Variable Costs
Factory Supplies	97570	94000	3570	U
Indirect Labour	136210	142880	6670	F
Utilities	82800	63920	18880	U
Patent Royalties	280466	278240	2226	U
Total Variable Overhead	597046	579040	18006	U
Fixed Costs:
Supervisory Salaries	169000	150400	18600	U
Depreciation on Equipment	144000	144000	0	-
Factory Taxes	57000	45120	11880	U
Factory Insurance	32000	30080	1920	U
Utilities	96000	75200	20800	U
Total Fixed Overhead	498000	444800	53200	U
Total Overhead Costs	1095046	1023840	71206	U

In order to Calculate Budget for 4700 Hours, take Budget according to 5000 Hours and apply the Formula as follows:

For Example, lets calculate-

Factory Supplies = ($ 100,000 * 4700 Hours ) / 5000 Hours

= $ 94,000.

Variance for Factory Supplies = Budget for 4700 Hours - Actual

= 94000 - 97570

= 3570 (Unfavourable)

Apply the Same Formula for the rest of the Items and accordingly you will arrive at the above figures. However there will be no change in Depreciation, it remains same irrespective of Hours used.