Case 4: Artisan Company Artisan 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: Variable costs: Direct materials Direct labor $900,000 675,000 Utilities 45,000 Indirect labor 67,500 Supplies 22,500 Total variable cost 1,710,000 Fixed costs: Insurance 8,000 Supervisory salaries 90,000 Depreciation 160,000 Equipment rental 42,000 Total fixed cost 300,000 Total budgeted cost $2,010,000 Budgeted direct labor-hours 75,000 Since the assembly work is done mostly by hand, operating activity in this department is best measured by direct labor-hours. The cost formulas used to develop the budgeted costs above are valid over a relevant range of 60,000 to 90,000 direct labor-hours per year. Questions: 1. Prepare a manufacturing overhead flexible budget for the Assembly Department using increments of 15,000 hours. (The company does not include direct materials and direct labor costs in the flexible budget) Hint: The manufacturing overhead flexible budget that you prepare will look like a flexible budget at various levels of activity (in your case various levels will be: 60,000; 75,000; 90,000 direct labor-hours) 2. Assume that the company computes predetermined overhead rates by department. Compute the rates, variable and fixed, that will be used to apply Assembly Department overhead costs to production. 3. Suppose that during the year the following actual activity and costs are recorded by the Assembly Department: Actual direct labor-hours worked Standard direct labor-hours allowed for the output of the year Actual variable manufacturing overhead cost incurred Actual fixed manufacturing overhead cost incurred 73,000 70,000 $124,100 $301,600 a. Determine the amount of applied overhead cost for the year, and compute the underapplied or overapplied overhead. b. Analyze the underapplied or overapplied overhead in terms of the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances. Label each variance as favorable (F) or unfavorable (U).