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	$34,300 + $1.25 DLH
Power	$0.50 DLH
Indirect labor	$68,500 + $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	$ 63,900
Power	12,430
Indirect labor	129,460
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
DLH for units produced
Production costs:
	$	$	$
Total	$	$	$

Answer 1

	Standard Model	Deluxe Model	Total
Actual Production in Units	310000	115000
Labor hours required per unit	0.05	0.08
Labor Hours	15500	9200	24700

Meliore Inc
Performance report
For the year ended December 31
	Actual	Budget	Variance
DLH for units produced	24700	24700
Production costs:
Maintenance	$             63,900	$         65,175	$    1,275	F
Power	$             12,430	$         12,350	$         80	U
Indirect labor	$           129,460	$       125,310	$    4,150	U
Rent	$             31,700	$         31,700	$          -	NA
Total	$          237,490	$      234,535	$   2,955	U

Computation of Budgeted costs
Maintenance	34300+(1.25*24700)	$    65,175
Power	0.5*24700	$    12,350
Indirect labor	68500+(2.3*24700)	$ 125,310
Rent		$    31,700