Problem - Prepare a flexible budget and budget report for manufacturing overhead
Oakley Company estimates that 360,000 direct labour hours will be worked in the packaging department during 2016. Based on that, it has calculated the following budgeted manufacturing overhead cost data for the year.
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Fixed overhead Costs
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Variable Overhead Costs
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Supervision
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$90,000
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Indirect labour
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$126,000
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Depreciation
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60,000
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Indirect materials
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90,000
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Insurance
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30,000
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Repairs
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54,000
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Rent
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24,000
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Utilities
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72,000
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Property taxes
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18,000
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Lubricants
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18,000
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$222,000
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$360,000
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The company estimates that the direct labour hours worked each month will range from 27,000 to 36,000 hours. During October, 27,000 direct labour hours were worked and the following overhead costs were incurred:
1. Fixed overhead costs-supervision $7,500; depreciation $5,000; insurance $2,470; rent $2,000; and property taxes $1.500.
2. Variable overhead costs-indirect labour $10,360; indirect materials $6,400; repairs $4,000; utilities $5,700; and lubricants $1,640.
Instructions-
(a) Prepare a monthly flexible manufacturing overhead budget for each increment of 3,000 direct labour hours over the relevant range for the year ending December 31,
(b) Prepare a flexible budget report for October.
(c) Comment on management's efficiency in controlling manufacturing overhead costs in October.