Question

Zelmer Company manufactures tablecloths. Sales have grown rapidly over the past 2 years. As a result, the president has installed a budgetary control system for 2017. The following data were used in developing the master manufacturing overhead budget for the Ironing Department, which is based on an activity index of direct labor hours. Variable costs Rate per Direct Labor Hour Annual Fixed Costs Indirect labor $0.42 Supervision $44,160 Indirect materials 0.53 Depreciation 18,960 Factory utilities 0.31 Insurance 16,560 Factory repairs 0.21 Rent 27,720 The master overhead budget was prepared on the expectation that 475,300 direct labor hours will be worked during the year. In June, 45,300 direct labor hours were worked. At that level of activity, actual costs were as shown below. Variable—per direct labor hour: indirect labor $0.44, indirect materials $0.52, factory utilities $0.34, and factory repairs $0.25. Fixed: same as budgeted.

(a) Prepare a monthly manufacturing overhead flexible budget for the year ending December 31, 2017, assuming production levels range from 41,300 to 56,900 direct labor hours. Use increments of 5,200 direct labor hours. (List variable costs before fixed costs.)

(b) Prepare a budget report for June comparing actual results with budget data based on the flexible budget. (List variable costs before fixed costs.)

Answer 1

Solution a:

Zelmer Company
Monthly Manufacturing Overhead Flexible Budget
For the year 2017
Particulars	DLH - 41300	DLH - 46500	DLH - 51700	DLH - 56900
Direct Labor hours	41300	46500	51700	56900
Variable Costs:
Indirect labor	$17,346.00	$19,530.00	$21,714.00	$23,898.00
Indirect Materials	$21,889.00	$24,645.00	$27,401.00	$30,157.00
Utilities	$12,803.00	$14,415.00	$16,027.00	$17,639.00
Factory repairs	$8,673.00	$9,765.00	$10,857.00	$11,949.00
Total Variable overhead cost	$60,711.00	$68,355.00	$75,999.00	$83,643.00
Fixed overhead costs:
Supervision	$3,680.00	$3,680.00	$3,680.00	$3,680.00
Depreciation	$1,580.00	$1,580.00	$1,580.00	$1,580.00
Insurance	$1,380.00	$1,380.00	$1,380.00	$1,380.00
Rent	$2,310.00	$2,310.00	$2,310.00	$2,310.00
Total Fixed overhead cost	$8,950.00	$8,950.00	$8,950.00	$8,950.00
Total Overhead Cost	$69,661.00	$77,305.00	$84,949.00	$92,593.00

Solution b:

Zelmer Company
Manufacturing overhead flexible budget report (45300 Direct labor hours)
For the month ended June 30, 2017
Particulars	Budget	Actual cost	Difference	Favorable / Unfavorable / Neither favorable nor unfavorable
Variable overhead costs:
Indirect labor	$19,026.00	$19,932.00	$906.00	Unfavorable
Indirect Materials	$24,009.00	$23,556.00	$453.00	Favorable
Utilities	$14,043.00	$15,402.00	$1,359.00	Unfavorable
Factory repairs	$9,513.00	$11,325.00	$1,812.00	Unfavorable
Total Variable overhead cost	$66,591.00	$70,215.00	$3,624.00	Unfavorable
Fixed overhead costs:
Supervision	$3,680.00	$3,680.00	$0.00	Neither Favorable nor Unfavorable
Depreciation	$1,580.00	$1,580.00	$0.00	Neither Favorable nor Unfavorable
Insurance	$1,380.00	$1,380.00	$0.00	Neither Favorable nor Unfavorable
Rent	$2,310.00	$2,310.00	$0.00
Total Fixed overhead cost	$8,950.00	$8,950.00	$0.00	Neither Favorable nor Unfavorable
Total Overhead Cost	$75,541.00	$79,165.00	$3,624.00	Unfavorable