Problem - Outkast Company uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour as follows:
Indirect labor $0.50
Indirect materials 1.50
Maintenance .40
Utilities .20
Budgeted fixed overhead costs per month are:
Supervision $4,000
Insurance 2,000
Property taxes 1,000
Depreciation 9,000
The company believes it will normally operate in a range of 28,000 to 35,000 machine hours per month. During the month of August, 2009, the company incurred the following manufacturing overhead costs:
Indirect Labor $14,800
Indirect Materials 44,000
Maintenance 12,000
Utilities 6,500
Supervision 4,200
Insurance 2,100
Property Taxes 800
Depreciation 8,600
Required:
a) Prepare a flexible budget report, assuming that the company used 31,000 machine hours during August.
b) Briefly discuss whether or not any items should be investigated further.