Data P10-3:
Harper Company assembles all of its products in the Assembly Department. Budgeted cost for the
operation of this department for the year have been set as follows:
HARPER COMPANY
Budget costs for Assembly Department:
Variable costs:
Direct materials	$900,000
Direct labor	675,000
Utilities	45,000
Indirect labor	67,500
Supplies	22,500
Total variable costs	1,710,000
Fixed costs:
Insurance	8,000
Supervisory Salaries	90,000
Depreciation	160,000
Equipment rental	42,000
Total fixed costs	300,000
Total budgeted costs	$2,010,000
Budgeted direct labor-hours	75,000
Part 3: Actual activities and costs:
Actual direct labor-hours worked	73,000
Standard direct labor-hours allowed	70,000
Actual variable manufacturing overhead cost incurred	$124,100
Actual fixed manufacturing overhead cost incurred	301,600
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.
Required:
1. Prepare a manufacturing overhead flexible budget for the Assembly Department using increments
of 15,000 direct labor-hours. (The company does not include direct materials and direct labor
costs in the flexible budget.)
2. Assume that the company computes predetermined overhead rates by department. Compute
the rates that will be used to apply Assembly Department overhead costs to production. Break
this rate down into variable and fixed cost elements.
3. Notice the information labeled part 3 above.
a. A T-account for manufacturing overhead costs in the Assembly Department for the year is
given on the following answer sheet. Determine the amount of applied overhead cost for the
year, and compute the under-or-over applied overhead.
b. Analyze the under-or-overapplied overhead in terms of the variable overhead spending and
efficiency variances and the fixed overhead budget and volume variances.