Question

Myers Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.

Indirect labor		$1.00
Indirect materials		0.90
Utilities		0.40

Fixed overhead costs per month are Supervision $3,700, Depreciation $1,700, and Property Taxes $800. The company believes it will normally operate in a range of 5,700–9,300 direct labor hours per month.

Assume that in July 2020, Myers Company incurs the following manufacturing overhead costs.

Variable Costs				Fixed Costs
Indirect labor		$7,870		Supervision		$3,700
Indirect materials		7,120		Depreciation		1,700
Utilities		2,780		Property taxes		800

(a) Prepare a flexible budget performance report, assuming that the company worked 8,100 direct labor hours during the month. (List variable costs before fixed costs.)

Answer 1

Monthly Manufacturing Overhead Flexible Budget
For the Year 2020
	Budget	Actual costs	Difference
Direct labor hours	8100	8100
Variable costs
Indirect labor	8100	7870	230	Favorable
Indirect materials	7290	7120	170	Favorable
Utilities	3240	2780	460	Favorable
Total variable cost	18630	17770	860	Favorable
Fixed costs
Supervision	3700	3700	0	Neither Favorable nor unfavorable
Depreciation	1700	1700	0	Neither Favorable nor unfavorable
Property taxes	800	800	0	Neither Favorable nor unfavorable
Total fixed costs	6200	6200	0	Neither Favorable nor unfavorable
Total costs	24830	23970	860	Favorable