Asper Company has recently introduced budgeting as an integral part of its corporate planning process. An inexperienced member of the accounting staff was given the assignment of constructing a flexible budget for manufacturing overhead costs and prepared it in the format that follows: Percentage of Capacity Machine-hours Utilities Supplies Indirect labour Maintenance Supervision Total manufacturing overhead cost 80% 100% 40,000 50,000 $ 41,000 $ 49,000 4,000 5,000 8,000 10,000 37,000 41,000 10,000 10,000 $100,000 $115,000 The company assigns manufacturing overhead costs to production on the basis of standard machine-hours. The cost formulas used to prepare the budgeted figures above are relevant over a range of 80% to 100% of capacity in a month. The managers who will be working under these budgets have control over both fixed and variable manufacturing overhead costs. Required: 1. Use the high-low method to separate fixed and variable costs. (Round variable cost answers to 2 decimal places.) Variable Component Fixed Component Overhead Item Utilities Supplies Indirect labour Maintenance Supervision Totals S 0.00 S 2. Come up with a single cost formula for all overhead costs based on your analysis in requirement 1 above. (Hint Your cost formula should be of the form: y = a + bx.) (Round variable cost answer to 2 decimal places.) Y= 3. During May, the company operated at 86% of machine-hour capacity. Actual manufacturing overhead costs incurred during the month were as follows: Utilities Supplies Indirect labour Maintenance Supervision Total actual manufacturing overhead cost $ 42,540 6,450 9,890 35,190 10,000 $104,070 Fixed costs had no budget variances. Prepare an overhead performance report for May. Include both fixed and variable costs in your report (in separate sections). Structure your report so that it shows only a spending variance for variable overhead. The company originally budgeted to work 40,000 machine-hours during the month; standard hours allowed for the month's production totalled 41,000 machine-hours. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round "Cost Formula per MH" answers to 2 decimal places.) Overhead Costs Cost Formula Actual Cost 43,000 MH Flexible Budget 43,000 MH Spending Variance per MH Variable overhead costs: $ 0.00 0 0 Total variable overhead cost Fixed overhead costs: 0 0 Total fixed overhead cost Total overhead cost $ 0 $ 0
