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		0.70
Utilities		0.40

Fixed overhead costs per month are Supervision $4,200, Depreciation $1,800, and Property Taxes $600. The company believes it will normally operate in a range of 7,000–13,000 direct labor hours per month.

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

Variable Costs				Fixed Costs
Indirect labor		$10,760		Supervision		$4,200
Indirect materials		7,520		Depreciation		1,800
Utilities		3,950		Property taxes		600

(a) Prepare a flexible budget performance report, assuming that the company worked 11,000 direct labor hours during the month. (List variable costs before fixed costs.)

MYERS COMPANY Manufacturing Overhead Flexible Budget Report For the Month Ended July 31, 2017
						Difference
		Budget		Actual Costs		Favorable Unfavorable Neither Favorable nor Unfavorable

(b) Prepare a flexible budget performance report, assuming that the company worked 10,300 direct labor hours during the month. (List variable costs before fixed costs.)

MYERS COMPANY Manufacturing Overhead Flexible Budget Report For the Month Ended July 31, 2017
						Difference
		Budget		Actual Costs		Favorable Unfavorable Neither Favorable nor Unfavorable

Answer 1

a.			Budget	Actual costs	Differences
	Direct labor hours	(q)	11,000	11,000	-	Neither favorable nor unfavorable
	Variable costs:
	Indirect labor	1.00 q	$ 11,000	$ 10,760	240	Favorable
	Indirect material	0.70 q	$    7,700	$    7,520	180	Favorable
	Utilities	0.40 q	$    4,400	$    3,950	450	Favorable
	Total Variable cost		$ 23,100	$ 22,230	870	Favorable
	Fixed costs
	Supervision		$    4,200	$    4,200	-	Neither favorable nor unfavorable
	Depreciation		$    1,800	$    1,800	-	Neither favorable nor unfavorable
	Property taxes		$        600	$        600	-	Neither favorable nor unfavorable
	Total Fixed costs		$    6,600	$    6,600	-	Neither favorable nor unfavorable
	Total costs		$ 29,700	$ 28,830	870	Favorable
b.			Budget	Actual costs	Differences
	Direct labor hours	(q)	10,300	10,300	-	Neither favorable nor unfavorable
	Variable costs:
	Indirect labor	1.00 q	$ 10,300	$ 10,760	460	Unfavorable
	Indirect material	0.70 q	$    7,210	$    7,520	310	Unfavorable
	Utilities	0.40 q	$    4,120	$    3,950	170	Favorable
	Total Variable cost		$ 21,630	$ 22,230	600	Unfavorable
	Fixed costs
	Supervision		$    4,200	$    4,200	-	Neither favorable nor unfavorable
	Depreciation		$    1,800	$    1,800	-	Neither favorable nor unfavorable
	Property taxes		$        600	$        600	-	Neither favorable nor unfavorable
	Total Fixed costs		$    6,600	$    6,600	-	Neither favorable nor unfavorable
	Total costs		$ 28,230	$ 28,830	600	Unfavorable

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