Whalen Company manufactures tablecloths. Sales have grown rapidly over the past 2 years. As a result, the president has installed a budgetary control system for 2002. The following data were used in developing the master manufacturing overhead budget for the Ironing Department, which is based on an activity index of direct labor hours.

The master overhead budget was prepared on the expectation that 480,000 direct labor hours will be worked during the year. In June, 42,000 direct labor hours were worked and 42,000 were expected. At that level of activity, actual costs were as follows. Variable—per direct labor hour: Indirect labor \($0.43\), Indirect materials \($0.50\), Factory utilities \($0.32\), and Factory repairs \($0.24\). Fixed: same as budgeted

Instructions

(a) Prepare a monthly flexible manufacturing overhead budget for the year ending December 31, 2002, assuming production levels range from 35,000 to 50,000 direct labor hours. Use increments of 5,000 direct labor hours.

(b) Prepare a budget performance report for June comparing actual results with budget data based on the flexible budget.

(c) Were costs effectively controlled? Explain.

(d) State the formula for computing the total budgeted costs for Whalen Company.

(e) Prepare the flexible budget graph, showing total budgeted costs at 35,000 and 45,000 direct labor hours. Use increments of 5,000 direct labor hours on the horizontal axis and increments of \($10,000\) on the vertical axis.

Transcribed Image Text:

Variable Costs Indirect labor Indirect materials Factory utilities Factory repairs Rate per Direct Labor Hour $0.40 Annual Fixed Costs Supervision Depreciation 0.50 0.30 Insurance 0.20 Rent $30,000 18,000 12,000 24,000