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Flexible budget and report

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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 2008. The following data were used in developing the master manufacturing overhead budget for the Ironing Department, which is based on an activity index of direct labor hours.

Variable Costs Rate per Direct 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 worked 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 budgeted.

Prepare flexible budget, budget report, and graph for manufacturing overhead.

(a) Prepare a monthly manufacturing overhead flexible budget for the year ending December 31, 2008, 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.

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The solution explains how to prepare a flexible budget and related report.

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Preparing Production Department's Flexible Budget Report

Attached you will find the practice exercises

Prepare the Production Department's flexible budget performance report for March, including both the activity and spending variances. (Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Omit the "$" sign in your response.)

Packaging Solutions Corporation
Production Department Flexible Budget Performance Report
For the Month Ended March 31
Activity Variances Spending Variances
Direct labor $


indirect labor



Equipment depreciation

Factory rent

Property taxes

Factory administration

Total expense $


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