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 0.50 Utilities 0.20 Fixed overhead costs per month are Supervision $4,500, Depreciation $1,600, and Property Taxes $700. The company believes it will normally operate in a range of 6,400–11,200 direct labor hours per month. Prepare a monthly manufacturing overhead flexible budget for 2017 for the expected range of activity, using increments of 1,600 direct labor hours.

Answer 1

SOLUTION

MYERS COMPANY

Monthly Manufacturing Overhead Flexible Budget

For the Year 2017

	Amount ($)	Amount ($)	Amount ($)	Amount ($)
Activity level
Direct labor hours	6,400	8,000	9,600	11,200
Variable costs
Indirect labor ($1.00)	6,400	8,000	9,600	11,200
Indirect materials ($0.50)	3,200	4,000	4,800	5,600
Utilities ($0.20)	1,280	1,600	1,920	2,240
Total variable cost ($1.70) (A)	10,880	13,600	16,320	19,040
Fixed costs
Supervision	4,500	4,500	4,500	4,500
Depreciation	1,600	1,600	1,600	1,600
Property taxes	700	700	700	700
Total fixed costs (B)	6,800	6,800	6,800	6,800
Total costs (A+B)	17,680	20,400	23,120	25,840