Harper Company assembles all of its products in the Assembly Department. Budgeted costs for the operation of this department for the year have been set as follows:

Since the assembly work is done mostly by hand, operating activity in this department is best measured by direct labour-hours. The cost formulas used to develop the budgeted costs above are valid over a relevant range of 60,000 to 90,000 direct labour-hours per year.

Required
1. Prepare a manufacturing overhead flexible budget in good form for the Assembly Department. Make your budget in increments of 15,000 direct labour-hours. (The company does not include direct materials and direct labour costs in the flexible budget.)
2. Assume that the company computes predetermined overhead rates by department. Compute the rates that will be used by the Assembly Department to apply overhead costs to production. Break this rate down into variable and fixed cost elements.
3. Suppose that during the year the following actual activity and costs are recorded by the Assembly Department:

Complete the following:
(a) A T-account for manufacturing overhead costs in the Assembly Department for the year is given below. Determine the amount of applied overhead cost for the year, and compute the under- or overapplied overhead.

(b) Analyse the under- or overapplied overhead figure in terms of the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances.

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Variable overhead costs: Direct materials Direct labour Utilities Indirect labour Supplies Total variable overhead cost Fixed overhead costs: Insurance Supervisory salaries Depreciation Equipment rental Total fixed overhead cost Total budgeted overhead cost Budgeted direct labour-hours £900,000 675,000 45,000 67,500 22,500 1,710,000 8,000 90,000 160,000 42,000 300,000 £2,010,000 75,000