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.

HARPER COMPANY
Flexible Budget-Assembly Department
Budgeted direct labor-hours
	Cost
	Formula	Direct Labor-Hours
Item	per DLH
Variable costs:
Utilities
Indirect labor
Supplies
Total variable
Fixed costs:
Insurance
Supervisory Salaries
Depreciation
Equipment rental
Total fixed
Total overhead costs
HARPER COMPANY
Overhead Rates
Variable overhead rate:
Variable overhead costs
Budgeted DLH
Variable overhead rate
Fixed overhead rate:
Fixed overhead costs
Budgeted DLH
Fixed overhead rate
Total overhead rate:
Total overhead costs
Budgeted DLH
Total overhead rate
Requirment 3 (a)
HARPER COMPANY
Variable Overhead Spending and Efficiency Variances
Manufacturing Overhead
Actual costs		425,700		Applied costs
Underapplied overhead
Analysis of under- or overapplied overhead:
Variable overhead variances:
				Actual hours	Actual hours	Standard
Actual	Actual	Standard	Standard	of input	of input	for output
hours	rate	hours	rate	@ actual rate	@ std. rate	@ std. rate
		Spending Variance
		Efficiency Variance
Fixed overhead variances:
	Budgeted	Fixed OH Cost
Actual Fixed	Fixed	Applied to
OH Cost	OH Cost	Work in Process
Budget Variance
Volume Variance
Overhead variances summary:
Variable overhead:
Spending variance
Efficiency variance
Fixed overhead:
Budget variance
Volume variance
Underapplied overhead