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 $0.40 Supervision $48,000 Indirect materials 0.50 Depreciation 18,000 Factory utilities 0.30 Insurance 12,000 Factory repairs 0.20 Rent 30,000 The master overhead budget was prepared on the expectation that 480,000 direct labor hours will be worked during the year. In June, 41,000 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 $0.48, factory utilities $0.32, 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 35,000 to 50,000 direct labor hours. Use increments of 5,000 direct labor hours. (b)Prepare a budget report for June comparing actual results with budget data based on the flexible budget State the formula for computing the total budgeted costs for the Ironing Department. (Round variable cost per unit to 2 decimal places, e.g. 1.55.) The formula is = $ + total variable costs of $ per direct labor hour.

Answer 1

	Monthly Manufacturing Overhead Flexibe Budget
	Rate
		Activity Level
		Direct labor hours		35,000	40,000	45,000	50,000
		Variable costs
	0.4	Indirect labor		14000	16000	18000	20000
	0.5	Indirect materials		17500	20000	22500	25000
	0.3	Factory utilities		10500	12000	13500	15000
	0.2	Factory repairs		7000	8000	9000	10000
	1.4	Total variable costs		49000	56000	63000	70000
		Fixed costs:
		Supervision		4000	4000	4000	4000
		Depreciation		1500	1500	1500	1500
		Insurance		1000	1000	1000	1000
		Rent		2500	2500	2500	2500
		total fixed costs		9000	9000	9000	9000
		total costs		58000	65000	72000	79000
	b)		Manufacturing Overhead Flexible Budget
				Budgetat	Actual cost	Favorable F
	actual					Unfavourable U
		Activity Level		41,000	41,000
		Direct labor hours
		Variable costs
	0.44	Indirect labor		16400	18040	1640	U
	0.48	Indirect materials		20500	19680	820	F
	0.32	Factory utilities		12300	13120	820	U
	0.25	Factory repairs		8200	10250	2050	U
	1.49	Total variable costs		57400	61090	3690	U
		Fixed costs:
		Supervision		4000	4000	0
		Depreciation		1500	1500	0
		Insurance		1000	1000	0
		Rent		2500	2500	0
		total fixed costs		9000	9000	0
		total costs		66400	70090	3690	U
	c)	the formula is = $9,000 + $1.40 per direct labor hour