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Flexible budget

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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
July August
Direct labor hours 6,000 7,000
Overhead costs
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.

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Solution Summary

The solution explians how to prepare a flexible budget for different activity levels