Flaherty Manufacturing Company produces one product, Kebo. Because of wide fluctuations in demand for Kebo, the Assembly Department experiences significant variations in monthly production levels.

The annual master manufacturing overhead budget is based on 300,000 direct labor hours. In July 27,500 labor hours were worked. The master manufacturing overhead budget for the year and the actual overhead costs incurred in July are as follows.

Instructions:

(a) Prepare a monthly overhead flexible budget for the year ending December 31, 2010, assuming monthly production levels range from 22,500 to 30,000 direct labor hours. Use increments of 2,500 direct labor hours.

(b) Prepare a budget report for the month of July 2010 comparing actual results with budget data based on the flexible budget.

(c) E Were costs effectively controlled? Explain.

(d) State the formula for computing the total monthly budgeted costs in the Assembly Department.

(e) Prepare the flexible budget graph showing total budgeted costs at 25,000 and 27,500 direct labor hours. Use increments of 5,000 on the horizontal axis and increments of $10,000 on the vertical axis.

Transcribed Image Text:

Maintenance Overhead Costs Variable Indirect labor Indirect materials Utilities Fixed Master Budget (annual) Actual in July $ 360,000 $32,000 210,000 17,000 90,000 8,100 60,000 5,400 Supervision 150,000 12,500 Depreciation 120,000 10,000 Insurance and taxes 60,000 5,000 Total $1,050,000 $90,000