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# Flexible Overhead Budget, Report and Responsibilty Report

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Hay's Corporation is continuing its budget preparations. Hay's had the following static budget and overhead costs for March.

Hay's Corporation Hay's Corporation
For the Month of March For the Month of March
Budgeted production in units 117,500 Production in units 118,500
Budgeted costs Costs
Indirect materials \$ 7,050 Indirect materials \$ 7,100
Indirect labor 11,750 Indirect labor 11,825
Utilities 10,575 Utilities 10,700
Maintenance 5,875 Maintenance 5,900
Salaries 42,000 Salaries 42,000
Depreciation 16,800 Depreciation 16,800
Property taxes 2,500 Property taxes 2,500
Insurance 1,200 Insurance 1,200
Janitorial 1,300 Janitorial 1,300

Total budgeted costs \$99,050 Total costs \$99,325

Hay's produced 118,500 units in March rather than the budgeted number of units.

Instructions
(a) Prepare a flexible overhead budget based on the following amounts produced.

(1) 115,500 units
(2) 116,500 units
(3) 117,500 units
(4) 118,500 units
(5) 119,500 units

(b) Prepare a flexible budget report showing the differences (favorable and unfavorable) in manufacturing overhead costs for the month of March.

(c) Prepare a responsibility report for the manufacturing overhead for March, assuming only variable costs are controllable.

Can you please give me a detail on how it is calculated step by step?

#### Solution Summary

This solution provides assistance with a flexible overhead budget, a report, and a responsibility report.

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## Cost accounting problems

E10-4 (a,b)

Raney 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 0.40
Fixed overhead costs per month are: Supervision \$4,000, Depreciation \$1,500, and Property Taxes \$800. Assume that in July 2008, Raney Company incurs the following manufacturing overhead costs.
Variable Costs Fixed Costs
Indirect labor \$8,700 Supervision \$4,000
Indirect materials 4,300 Depreciation 1,500
Utilities 3,200 Property taxes 800

Prepare a flexible budget performance report, assuming that the company worked 9,000 direct labor hours during the month. (If answer is zero, please enter 0. Do not leave any fields blank.)
RANEY COMPANY
For the Month Ended July 31, 2008
Difference
Budget Actual Costs Favorable F
Direct labor hours 9,000 DLH 9,000 DLH Unfavorable U
Variable costs
Indirect labor \$
\$
\$

Indirect materials

Utilities

Total variable costs

Fixed costs
Supervision

Depreciation

Property taxes

Total fixed costs

Total costs \$
\$
\$

Prepare a flexible budget performance report, assuming that the company worked 8,500 direct labor hours during the month.
RANEY COMPANY
For the Month Ended July 31, 2008
Difference
Budget Actual Costs Favorable F
Direct labor hours 8,500 DLH 8,500 DLH Unfavorable U
Variable costs
Indirect labor \$
\$
\$

Indirect materials

Utilities

Total variable costs

Fixed costs
Supervision

Depreciation

Property taxes

Total fixed costs

Total costs \$
\$
\$

E10-7

Pletcher Company's manufacturing overhead budget for the first quarter of 2008 contained the following data.
Variable Costs Fixed Costs
Indirect materials \$12,000 Supervisory salaries \$36,000
Indirect labor 10,000 Depreciation 7,000
Utilities 8,000 Property taxes and insurance 8,000
Maintenance 6,000 Maintenance 5,000
Actual variable costs were: indirect materials \$13,800, indirect labor \$9,600, utilities \$8,700, and maintenance \$4,900. Actual fixed costs equaled budgeted costs except for property taxes and insurance, which were \$8,200. The actual activity level equaled the budgeted level.
All costs are considered controllable by the production department manager except for depreciation, and property taxes and insurance.

Prepare a flexible manufacturing overhead budget report for the first quarter. (If answer is zero, please enter 0. Do not leave any fields blank.)
PLETCHER COMPANY
For the Quarter Ended March 31, 2008
Difference
Favorable F
Budget Actual Unfavorable U
Variable costs
Indirect materials \$
\$
\$

Indirect labor

Utilities

Maintenance

Total variable costs

Fixed costs
Supervisory salaries

Depreciation

Prop. taxes & ins.

Maintenance

Total fixed costs

Total costs \$
\$
\$

Prepare a responsibility report for the first quarter. (If answer is zero, please enter 0. Do not leave any fields blank.)
PLETCHER COMPANY
For the Quarter Ended March 31, 2008
Difference
Favorable F
Controllable Costs Budget Actual Unfavorable U
Indirect materials \$
\$
\$

Indirect labor

Utilities

Maintenance

Supervisory salaries

Total costs \$
\$
\$

E10-9 (a)

Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business. The owner, Paul Pronto, had divided the company into two segments: Home Plumbing Services and Business Plumbing Services. Each segment is run by its own supervisor, while basic selling and administrative services are shared by both segments.
Paul has asked you to help him create a performance reporting system that will allow him to measure each segment's performance in terms of its profitability. To that end, the following information has been collected on the Home Plumbing Services segment for the first quarter of 2008.
Budgeted Actual
Service revenue \$25,000 \$26,000
Allocated portion of:
Building depreciation 11,000 11,000
Billing 3,500 3,000
Property taxes 1,200 1,000
Material and supplies 1,500 1,200
Supervisory salaries 9,000 9,400
Insurance 4,000 3,500
Wages 3,000 3,300
Gas and oil 2,700 3,400
Equipment depreciation 1,600 1,300
Prepare a responsibility report for the first quarter of 2008 for the Home Plumbing Services segment. (List budget amounts from largest to smallest eg 10, 5, 3, 2.)
PRONTO PLUMBING COMPANY
Home Plumbing Services Segment
Responsibility Report
For the Quarter Ended March 31, 2008
Difference
Favorable F
Budget Actual Unfavorable U

\$
\$
\$

Variable costs:

Total variable costs

Contribution margin

Controllable fixed costs:

Tot. controll. fixed costs

Controllable margin \$
\$
\$

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E10-14

The Sports Equipment Division of Brandon McCarthy Company is operated as a profit center. Sales for the division were budgeted for 2008 at \$900,000. The only variable costs budgeted for the division were cost of goods sold (\$440,000) and selling and administrative (\$60,000). Fixed costs were budgeted at \$100,000 for cost of goods sold, \$90,000 for selling and administrative and \$70,000 for noncontrollable fixed costs. Actual results for these items were:
Sales \$880,000
Cost of goods sold
Variable 409,000
Fixed 105,000
Variable 61,000
Fixed 67,000
Noncontrollable fixed 80,000

Prepare a responsibility report for the Sports Equipment Division for 2008.
BRANDON McCARTHY COMPANY
Sports Equipment Division
Responsibility Report
2008
Budget Actual Difference
Sales \$
\$
\$

Variable costs
Cost of goods sold

Total

Contribution margin

Controllable fixed costs
Cost of goods sold

Total

Controllable margin \$
\$
\$

Assume the division is an investment center, and average operating assets were \$1,000,000. Compute ROI. (Round answer to 1 decimal place, e.g. 10.5.)
%

P10-3A

Zelmer Company uses budgets in controlling costs. The August 2008 budget report for the company's Assembling Department is as follows.
ZELMER COMPANY
Budget Report
Assembling Department
For the Month Ended August 31, 2008
Difference
Favorable F
Manufacturing Costs Budget Actual Unfavorable U
Variable costs
Direct materials \$ 48,000 \$ 47,000 \$1,000 F
Direct labor 54,000 51,300 2,700 F
Indirect materials 24,000 24,200 200 U
Indirect labor 18,000 17,500 500 F
Utilities 15,000 14,900 100 F
Maintenance 9,000 9,200 200 U
Total variable 168,000 164,100 3,900 F
Fixed costs
Rent 12,000 12,000 -0-
Supervision 17,000 17,000 -0-
Depreciation 7,000 7,000 -0-
Total fixed 36,000 36,000 -0-
Total costs \$204,000 \$200,100 \$3,900 F
The monthly budget amounts in the report were based on an expected production of 60,000 units per month or 720,000 units per year. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The company president, however, is unhappy with the results for August, because only 58,000 units were produced.

State the total monthly budgeted cost formula.
The formula is fixed costs \$ plus variable costs of \$ per unit.

Prepare a budget report for August using flexible budget data. (If answer is zero, please enter 0. Do not leave any fields blank.)
ZELMER COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended August 31, 2008
Difference
Budget Actual Costs Favorable F
Units

Unfavorable U
Variable costs
Direct materials \$
\$
\$

Direct labor

Indirect materials

Indirect labor

Utilities

Maintenance

Tot. variable costs

Fixed costs
Rent

Supervision

Depreciation

Tot. fixed costs

Total costs \$
\$
\$

In September, 64,000 units were produced. Prepare the budget report using flexible budget data, assuming (1) each variable cost was 10% higher than its actual cost in August, and (2) fixed costs were the same in September as in August.
ZELMER COMPANY
Assembling Department
Flexible Budget Report
For the Month Ended September 30, 2008
Difference
Budget Actual Costs Favorable F
Units

Unfavorable U
Variable costs
Direct materials \$
\$
\$

Direct labor

Indirect materials

Indirect labor

Utilities

Maintenance

Tot. variable costs

Fixed costs
Rent

Supervision

Depreciation

Tot. fixed costs

Total costs \$
\$
\$

P10-5A (a,c)

Dinkle Manufacturing Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2008, and relevant budget data are as follows.
Actual Comparison
with Budget
Sales \$1,500,000 \$100,000 favorable
Variable cost of goods sold 700,000 60,000 unfavorable
Variable selling and administrative expenses 125,000 25,000 unfavorable
Controllable fixed cost of goods sold 170,000 On target
Controllable fixed selling and administrative expenses 80,000 On target
Average operating assets for the year for the Home Division were \$2,500,000 which was also the budgeted amount.

Prepare a responsibility report for the Home Division. (If answer is zero, please enter 0. Do not leave any fields blank.)
DINKLE MANUFACTURING COMPANY
Home Division
Responsibility Report
For the Year Ended December 31, 2008
Difference
Favorable F
Budget Actual Unfavorable U
Sales \$
\$
\$

Variable costs
Cost of goods sold

Tot. variable costs

Contribution margin

Contr. direct fixed costs
Cost of goods sold

Tot. fixed costs

Controllable margin \$
\$
\$

ROI %
%
%

Compute the expected ROI in 2009 for the Home Division, assuming the following independent changes to actual data. (Round answers to 1 decimal place, e.g. 10.5.)
1. Variable cost of goods sold is decreased by 6%.
2. Average operating assets are decreased by 10%.
3. Sales are increased by \$200,000, and this increase is expected to increase contribution margin by \$90,000.
1. %

2 %

3. %

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