Question

Crane Company estimates that 300,000 direct labor hours will be worked during the coming year, 2020, in the Packaging Department. On this basis, the following budgeted manufacturing overhead cost data are computed for the year.

Fixed Overhead Costs				Variable Overhead Costs
Supervision		$84,000		Indirect labor		$120,000
Depreciation		66,000		Indirect materials		60,000
Insurance		24,000		Repairs		30,000
Rent		18,000		Utilities		45,000
Property taxes		12,000		Lubricants		15,000
		$204,000				$270,000

It is estimated that direct labor hours worked each month will range from 20,000 to 26,000 hours.

During October, 20,000 direct labor hours were worked and the following overhead costs were incurred.

Fixed overhead costs: Supervision $7,000, Depreciation $5,500, Insurance $1,975, Rent $1,500, and Property taxes $1,000.

Variable overhead costs: Indirect labor $8,970, Indirect materials, $3,700, Repairs $1,960, Utilities $3,250, and Lubricants $1,240.

(a) Prepare a monthly manufacturing overhead flexible budget for each increment of 2,000 direct labor hours over the relevant range for the year ending December 31, 2020. (List variable costs before fixed costs.)

(b) Prepare a flexible budget report for October. (List variable costs before fixed costs.)

Answer 1

a.

Computation of standard variable overhead per direct labor hour
Particulars	Budgeted Cost	Budgted DLH	Overhead Rate
Indirect Labor	$1,20,000.00	300000	$0.40
Indirect materials	$60,000.00	300000	$0.20
Repairs	$30,000.00	300000	$0.10
Utilities	$45,000.00	300000	$0.15
Lubricants	$15,000.00	300000	$0.05

Packaging Department
Monthly Manufacturing overhead flexible budget
For the year 2020
Direct labor hours	20000	22000	24000	26000
Variable Costs:
Indirect Labor	$8,000.00	$8,800.00	$9,600.00	$10,400.00
Indirect materials	$4,000.00	$4,400.00	$4,800.00	$5,200.00
Repairs	$2,000.00	$2,200.00	$2,400.00	$2,600.00
Utilities	$3,000.00	$3,300.00	$3,600.00	$3,900.00
Lubricants	$1,000.00	$1,100.00	$1,200.00	$1,300.00
Total variable costs	$18,000.00	$19,800.00	$21,600.00	$23,400.00
Fixed Costs:
Supervision	$7,000.00	$7,000.00	$7,000.00	$7,000.00
Depreciation	$5,500.00	$5,500.00	$5,500.00	$5,500.00
Insurance	$2,000.00	$2,000.00	$2,000.00	$2,000.00
Rent	$1,500.00	$1,500.00	$1,500.00	$1,500.00
Property taxes	$1,000.00	$1,000.00	$1,000.00	$1,000.00
Total Fixed Costs	$17,000.00	$17,000.00	$17,000.00	$17,000.00
Total Costs	$35,000.00	$36,800.00	$38,600.00	$40,400.00

b.

Packaging Department
Manufacturing overhead flexible budget report
For the month ended October 31, 2020
Particulars	Budget (20000 hours)	Actual Cost (20000 hours)	Variance	Favorable / Unfavorable / Neither favorable nor unfavorable
Variable Costs:
Indirect Labor	$8,000.00	$8,970.00	$970.00	Unfavorable
Indirect materials	$4,000.00	$3,700.00	$300.00	Favorable
Repairs	$2,000.00	$1,960.00	$40.00	Favorable
Utilities	$3,000.00	$3,250.00	$250.00	Unfavorable
Lubricants	$1,000.00	$1,240.00	$240.00	Unfavorable
Total variable costs	$18,000.00	$19,120.00	$1,120.00	Unfavorable
Fixed Costs:
Supervision	$7,000.00	$7,000.00	$0.00	Neither Favorable nor Unfavorable
Depreciation	$5,500.00	$5,500.00	$0.00	Neither Favorable nor Unfavorable
Insurance	$2,000.00	$1,975.00	$25.00	Favorable
Rent	$1,500.00	$1,500.00	$0.00	Neither Favorable nor Unfavorable
Property taxes	$1,000.00	$1,000.00	$0.00	Neither Favorable nor Unfavorable
Total Fixed Costs	$17,000.00	$16,975.00	$25.00	Favorable
Total Costs	$35,000.00	$36,095.00	$1,095.00	Unfavorable