Fultz Company manufactures tablecloths. Sales have grown rapidly over the past 2 years. As a result, the president has installed a budgetary control system for 2010. The following data were used in developing the master manufacturing overhead budget for the Ironing Department, which is based on an activity index labor hours.
Rate per Direct
Variable Costs labor Hour Annual Fixed Costs
Indirect labor $0.40 Supervision $42,000
Indirect materials 0.50 Depreciation 18,000
Factory utilities 0.30 Insurance 12,000
Factory repairs 0.20 Rent 24,000
The master overhead budget was prepared on the expectation that 480,000 direct labor hours will be work during the year. In June, 42,000 direct labor hours were worked. At that level of activity, actual costs were as shown below.
Variable -per direct labor hour: Indirect labor $0.43, Indirect materials $0, 49, Factory utilities $0.32, and factory repairs $0.24.
Fixed: same as budget.
(a) Prepare a monthly manufacturing overhead flexible budget for the year ending December 31, 2010, 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.
(c) Were costs effectively controlled? Explain
(d) State the formula for computing the total budgeted costs for the Ironing Department.
(e) Prepare the flexible budget graph, showing total budgeted costs at 35,000 and 45,000 direct labor hours. Use increments of 5,000 direct labor hours on the horizontal axis and increments of $10,000 on vertical axis.
The solution explains how to prepare a manufacturing overhead flexible budget and use it for performance evaluation