Question

Exercise 23-04 a-b (Video) Sunland 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 $1.00 0.70 0.40 Fixed overhead costs per month are Supervision $4,200, Depreciation $1,800, and Property Taxes $600. The company believes it will normally operate in a range of 7,000-13,000 direct labor hours per month. Assume that in July 2020, Sunland Company incurs the following manufacturing overhead costs. Variable Costs Indirect labor Indirect materials Utilities $10,760 7,520 3,950 Fixed Costs Supervision Depreciation Property taxes $4,200 1,800 600 (a) Prepare a flexible budget performance report, assuming that the company worked 11,000 direct labor hours during the month. (List variable costs before fixed costs.)

Answer 1

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a.			Budget	Actual costs	Differences
	Direct labor hours	(q)	11,000	11,000	-	Neither favorable nor unfavorable
	Variable costs:
	Indirect labor	1.00 q	$ 11,000	$ 10,760	240	Favorable
	Indirect material	0.70 q	$    7,700	$    7,520	180	Favorable
	Utilities	0.40 q	$    4,400	$    3,950	450	Favorable
	Total Variable cost		$ 23,100	$ 22,230	870	Favorable
	Fixed costs
	Supervision		$    4,200	$    4,200	-	Neither favorable nor unfavorable
	Depreciation		$    1,800	$    1,800	-	Neither favorable nor unfavorable
	Property taxes		$        600	$        600	-	Neither favorable nor unfavorable
	Total Fixed costs		$    6,600	$    6,600	-	Neither favorable nor unfavorable
	Total costs		$ 29,700	$ 28,830	870	Favorable
b.			Budget	Actual costs	Differences
	Direct labor hours	(q)	10,300	10,300	-	Neither favorable nor unfavorable
	Variable costs:
	Indirect labor	1.00 q	$ 10,300	$ 10,760	460	Unfavorable
	Indirect material	0.70 q	$    7,210	$    7,520	310	Unfavorable
	Utilities	0.40 q	$    4,120	$    3,950	170	Favorable
	Total Variable cost		$ 21,630	$ 22,230	600	Unfavorable
	Fixed costs
	Supervision		$    4,200	$    4,200	-	Neither favorable nor unfavorable
	Depreciation		$    1,800	$    1,800	-	Neither favorable nor unfavorable
	Property taxes		$        600	$        600	-	Neither favorable nor unfavorable
	Total Fixed costs		$    6,600	$    6,600	-	Neither favorable nor unfavorable
	Total costs		$ 28,230	$ 28,830	600	Unfavorable