Question

Webb, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows: Indirect labor $5.00 Indirect materials 2.50 Maintenance .50 Utilities .30 Fixed overhead costs per month are: Supervision $1,200 Insurance 400 Property taxes 600 Depreciation 1,800 The company believes it will normally operate in a range of 4,000 to 8,000 machine hours per month. During the month of August, 2019, the company incurs the following manufacturing overhead costs: Indirect labor $28,000 Indirect materials 16,200 Maintenance 2,800 Utilities 1,900 Supervision 1,440 Insurance 400 Property taxes 600 Depreciation 1,860 Prepare a flexible budget report, assuming that the company used 6,000 machine hours during August.

Answer 1

Variable overhead costs per machine hour:

• Indirect labor $5.00
• Indirect materials $2.50
• Maintenance $0.50
• Utilities $0.30
• Total $8.30

Fixed overhead costs:

• Supervision $1,200
• Insurance $400
• Property taxes $600
• Depreciation $1,800
• Total $4,000

Flexible Actual Spending

budget expenses variances

Variable costs:

• Indirect labor $30,000 $28,000 $2,000 F
• Indirect materials $15,000 $16,200 $1,200 U
• Maintenance $3,000 $2,800 $200 F
• Utilities $1,800 $1,900 $100 U
• Total $49,800 $48,900 $900 F

Fixed costs:

• Supervision $1,200 $1,440 $240 U
• Insurance $400 $400 $0
• Property taxes $600 $600 $0
• Depreciation $1,800 $1,860 $60 U
• Total $4,000 $4,300 $300 U

Total costs $53,800 $52,300 $600 F