Question

Flexible Budget

In an attempt to improve budgeting, the controller for Meliore, Inc., has developed a flexible budget for overhead costs. Meliore, Inc., makes two types of products, the standard model and the deluxe model. Meliore expects to produce 300,000 units of the standard model and 120,000 units of the deluxe model during the coming year. The standard model requires 0.05 direct labor hour per unit, and the deluxe model requires 0.08. The controller has developed the following cost formulas for each of the four overhead items:

	Cost Formula
Maintenance	$34,600 + $1.25 DLH
Power	$0.50 DLH
Indirect labor	$68,200 + $2.30 DLH
Rent	$31,700

At the end of the year, Meliore, Inc., actually produced 310,000 units of the standard model and 115,000 of the deluxe model. The actual overhead costs incurred were:

Maintenance	$ 64,200
Power	12,410
Indirect labor	129,160
Rent	31,700

Required:

Prepare a performance report for the period. If there is no variance, enter "0" for the amount and select "NA" in the last column.

Meliore, Inc.
Performance Report
For the Year Ended December 31
	Actual	Budget	Variance	Fav/Unfav/NA
DLH for units produced
Production costs:
Maintenance	$	$	$
Power
Indirect labor
Rent
Total	$	$	$

Answer 1

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Meliore Inc.
Performance Report
For the year ended December 31
	Actual results	Budget	Variance
		(i)	(ii)
DLH for unit produced	24,700	24,700
Production costs:
Maintenance	$                                                     64,200	65,475	$    1,275	F
Power	$                                                     12,410	12,350	$          60	U
Indirect labor	$                                                 1,29,160	1,25,010	$    4,150	U
Rent	$                                                     31,700	31,700	$           0	NA
Total	$                                                 2,37,470	2,34,535	$    2,935	U
Workings:		Budget
DLH for unit produced	[(310000 X 0.05) + (115000 X 0.08)]	24,700
Production costs:
Maintenance	[$34600 + ($1.25 X q)]	65,475
Power	($0.50 X q)	12,350
Indirect labor	[$68200 + ($2.30 X q)]	1,25,010
Rent	$                                                     31,700	31,700
Total		2,34,535