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Flexible Budget

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Malone Company estimates that 360,000 direct labor hours will be worked during the coming year 2010, in the Packaging Department. On this basis the following budget manufacturing overhead cost data are computed for the year.
Fixed Overhead costs Variable Overhead Costs
Supervision $ 90,000 Indirect labor $120,000
Depreciation 60,000 Indirect materials 90,000
Insurance 30,000 Repairs 54,000
Rent 24,000 Utilities 72,000
Property taxes 18,000 Lubricants 18,000
$222,000 $300,000

It is estimated that direct labor hours worked each month will range from 27,000 to 36,000 hours.
During October 27,000 direct labor hours were worked and the following overhead costs were incurred.
Fixed overhead costs Supervision $7,500, Deprecation $5,000, Insurance $2,470, Rent $2,000, and Property taxes $1,500.
Variable overhead costs: Indirect labor $10,360, Indirect materials, $6, 400, Repairs $4,000, Unities $5,700, and Lubricants $1,640.
(a) Prepare a monthly manufacturing overhead flexible budget for each increment of 3,000 direct labor hours over the relevant $1,640.
(b) Prepare a flexible budget report for October.
(c ) Comment on management's efficiency in controlling manufacturing overhead costs in October.

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Solution Summary

The solution explains how to prepare a flexible budget and use it for performance evaluation

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