Question

The cutting department of Morgan Manufacturing Company operated during June 2017 with the following manufacturing overhead...

The cutting department of Morgan Manufacturing Company operated during June 2017 with the following manufacturing overhead cost budget based on 10,000 hours of monthly productive capacity:

Cutting Department

Overhead Budget (10,000 hours)

For the Month of June 2017

Variable costs:

Factory supplies…………………………......$200,000

Indirect labor……………………………………304,000

Utilities (usage charge)………….……….. 136,000

    Total variable overhead………………… $640,000

Fixed costs:

Supervisory salaries………………………… $320,000

Factory insurance…………………………… 64,000

Utilities (base charge)…………………….. 160,000

    Total fixed overhead………………....... $544,000

Total manufacturing overhead…......... $1,184,000

The cutting department was operated for 9,500 hours during June and incurred the following manufacturing overhead costs:                   

                                                                                                                                                Actual

Factory supplies……………………………….. $195,100

Indirect labor…………………………………….   277,000

Utilities (usage factor)……………………...    152,300

Utilities (base factor)…………………………   179,000

Supervisory salaries………………………….. 336,000

Factory insurance………………………………. 64,600

Total manufacturing overhead………….. $1,204,000

Required:

Using a flexible budgeting approach, prepare a performance report for the cutting department for June 2017, comparing actual overhead costs with budgeted overhead costs for 9,500 hours. Separate overhead costs into variable and fixed components and show the amounts of any variances between actual and budgeted amounts.

Actual               Budget                  Variance

Business   Accounting   
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Answer #1
Actual Budget Variance
Hours 9500 9500
Variable expense
Factory supplies 195100 190000 5100 U
Indirect labor 277000 288800 11800 F
Utilities (usage charge) 152300 129200 23100 U
Total variable expense 624400 608000 16400 U
Fixed expense
Supervisor salaries 336000 320000 16000 U
Factory insurance 64600 64000 600 U
Utilities (base charge) 179000 160000 19000 U
Total fixed expense 579600 544000 35600 U
Total manufacturing expense 1204000 1152000 52000 U
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