Question

Myers Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.

Indirect labor		$ 1.00
Indirect materials		0.50
Utilities		0.30

Fixed overhead costs per month are Supervision $ 3,500 , Depreciation $ 1,000 , and Property Taxes $ 500 . The company believes it will normally operate in a range of 5,500 – 8,500 direct labor hours per month.

Assume that in July 2017, Myers Company incurs the following manufacturing overhead costs.

Variable Cost	Fix Cost
Indirect labor $ 7,300	Supervision $ 3,500
Indirect materials 3,650	Depreciation 1,000
Utilities 1,850	Property taxes 500

(a) Prepare a flexible budget performance report, assuming that the company worked 7,500 direct labor hours during the month.

(b) Prepare a flexible budget performance report, assuming that the company worked 7,000 direct labor hours during the month.

Answer 1

(A)

Mayer COMPANY
Monthly Manufacturing Overhead Flexible Budget
For the Year 2017
Activity Level
Direct Labor Hours	7000
Variable Costs
Indirect Labor	7000
Indirect Material	3500
Utilities	2100
Total Variable Costs	12600
Fixed Costs
Supervision	3500
Depreciation	1000
Property Taxes	500
Total Fixed Costs	5000
Total Costs	17600

(b)

Mayer COMPANY
Monthly Manufacturing Overhead Flexible Budget
For the Year 2017
Activity Level
Direct Labor Hours	7500
Variable Costs
Indirect Labor	7500
Indirect Material	3750
Utilities	2250
Total Variable Costs	13500
Fixed Costs
Supervision	3500
Depreciation	1000
Property Taxes	500
Total Fixed Costs	5000
Total Costs	18500

Working notes for the above answer is as under