Question

Webster Manufacturing uses a flexible budget for manufacturing costs based on machine hours. Variable manufacturing costs per machine hour are as follows:

         Indirect labor                                            $5.00

         Indirect materials                                        2.50

         Maintenance                                                 .50

         Utilities                                                         .30

Fixed costs per month are:

         Supervision                                             $1,200

         Insurance                                                     400

         Property taxes                                              600

         Depreciation                                             1,800

Part A:  The Company believes it will normally operate in a range of 4,000 to 8,000 machine hours per month, selling at a price of $10 per machine hour.

Instructions

Prepare a flexible budget using increments of 2,000 machine hours within the activity relevant range (4,000 & 6,000 & 8,000 machine hours).

Part B:  During the month of February 2020, the company incurs the following manufacturing costs:

         Indirect labor                                        $28,000

         Indirect materials                                    16,200

         Maintenance                                             2,800

         Utilities                                                     1,700

         Supervision                                               1,440

         Insurance                                                     400

         Property taxes                                              600

         Depreciation                                             1,860

Instructions

NOW Prepare a flexible budget analysis, assuming that the company used 6,000 machine hours during February.

Answer 1

Part A:

Units		4000	6000	8000
Sales price	10.00	40,000.00	60,000.00	80,000.00
Less: variable cost
Indirect material	2.50	10,000.00	15,000.00	20,000.00
Indirect Labor	5.00	20,000.00	30,000.00	40,000.00
Maintenance	0.50	2,000.00	3,000.00	4,000.00
Utilities	0.30	1,200.00	1,800.00	2,400.00
Contribution		6,800.00	10,200.00	13,600.00
Supervision		1,200.00	1,200.00	1,200.00
Insurance		400.00	400.00	400.00
Property Taxes		600.00	600.00	600.00
Depreciation		1,800.00	1,800.00	1,800.00
Net Income		2,800.00	6,200.00	9,600.00

Part B:

	Actual		Budgetted		Variance => Budgted - Actual		Favorable/Unfavorable
	Total	Per hour	Total	Per hour
Indirect material	16200	2.70	15000	2.5	-1200	(0.20)	U
Indirect Labor	28000	4.67	30000	5	2000	0.33	F
Maintenance	2800	0.47	3000	0.5	200	0.03	F
Unilities	1700	0.28	1800	0.3	100	0.02	F
Supervision	1440		1200		-240		U
Insurance	400		400		0		-
Property Taxes	600		600		0		-
Depreciation	1860		1800		-60		U