Preparing a flexible budget report

Question: 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.


1) Prepare a monthly manufacturing overhead flexible budget for each increment of 3,000 direct labor hours over the relevant $1,640.

2) Prepare a flexible budget report for October.

3) Comment on management’s efficiency in controlling manufacturing overhead costs in October.

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Accounting Basics: Preparing a flexible budget report
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