Question

Flexible Budget

In an attempt to improve budgeting, the controller for Meliore, Inc., has developed a flexible budget for overhead costs. Meliore, Inc., makes two types of products, the standard model and the deluxe model. Meliore expects to produce 300,000 units of the standard model and 120,000 units of the deluxe model during the coming year. The standard model requires 0.05 direct labor hour per unit, and the deluxe model requires 0.08. The controller has developed the following cost formulas for each of the four overhead items:

	Cost Formula
Maintenance	$34,300 + $1.25 DLH
Power	$0.50 DLH
Indirect labor	$68,200 + $2.30 DLH
Rent	$31,100

At the end of the year, Meliore, Inc., actually produced 310,000 units of the standard model and 115,000 of the deluxe model. The actual overhead costs incurred were:

Maintenance	$ 63,950
Power	12,430
Indirect labor	129,260
Rent	31,100

Required:

Prepare a performance report for the period. If there is no variance, enter "0" for the amount and select "NA" in the last column.

Meliore, Inc.
Performance Report
For the Year Ended December 31
	Actual	Budget	Variance
DLH for units produced
Production costs:
	$	$	$
Total	$	$	$

Answer 1

First of all, calculate the total number of standard direct labour hours for actual units producted (which are 310,000 units of standard model and 115,000 units of Deluxe model -

Now let's calculate the standard cost for actual units produced as per the standard cost formula of overheads as given -

Cost as per cost formula for Maintenance is - 34,300+1.25*24600 = 65,175 as so on for others as well. (on the basis of the formula given)

Performance Report:

The variance in the overheads is 236740-233635 = 3,105 Adverse. As the actual is more than the expected the variance is adverse.

Hours required per unit Standard Model Deluxe Model Number of units 310,000 115,000 Total hours 0.05 15,500 0.089,200 24,700