The relevant range for monthly activity is expected to be between 8,000 and 12,000 direct labor hours.
Instructions : Prepare a flexible budget for a monthly activity level of 8,000 and 9,000 direct labor hours.
Data concerning manufacturing overhead for Firuliru Company are presented below.
The Mixing Department is a cost center.
An analysis of the overhead costs reveals that all variable costs are controllable by the manager of the Mixing Department and that 50% of supervisory costs are controllable at the department level.
The flexible budget formula and the cost and activity for the months of July and August are as follows:
Flexible Budget Per
Direct Labor Hour Actual Costs and Activity
Direct labor hours 6,000 7,000
Indirect materials $3.50 $ 20,500 $ 25,100
Indirect labor 6.00 39,500 40,700
Factory supplies 1.00 7,600 8,200
Depreciation $20,000 15,000 15,000
Supervision 25,000 23,000 26,000
Property taxes 10,000 12,000 12,000
Total costs $117,600 $127,000
a) Prepare the responsibility reports for the Mixing Department for each month.
b) Comment on the manager's performance in controlling costs during the two month period.
The solution explians how to prepare a flexible budget for different activity levels