Exercise 24-4 (Essay)

Myers Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.

Indirect labor		$1.00
Indirect materials		0.60
Utilities		0.40

Fixed overhead costs per month are Supervision $4,000, Depreciation $1,200, and Property Taxes $800. The company believes it will normally operate in a range of 7,00010,000 direct labor hours per month. Assume that in July 2017, Myers Company incurs the following manufacturing overhead costs.

Variable Costs				Fixed Costs
Indirect labor		$8,800		Supervision		$4,000
Indirect materials		5,300		Depreciation		1,200
Utilities		3,200		Property taxes		800

MYERS COMPANY Manufacturing Overhead Flexible Budget Report For the Month Ended July 31, 2017
						Difference
		Budget		Actual Costs		Favorable F Unfavorable U
Direct labor hours (DLH)		9,000 DLH		9,000 DLH
Variable costs
Indirect labor		$9,000		$8,800		$200	F
Indirect materials		6,300		5,800		500	F
Utilities		3,600		3,200		400	F
Total variable costs		18,900		17,800		1,100	F
Fixed costs
Supervision		4,000		4,000
Depreciation		1,200		1,200
Property taxes		800		800
Total fixed costs		6,000		6,000
Total costs		$24,900		$23,800		$1,100	F

MYERS COMPANY Manufacturing Overhead Flexible Budget Report For the Month Ended July 31, 2017
						Difference
		Budget		Actual Costs		Favorable F Unfavorable U
Direct labor hours (DLH)		8,500 DLH		8,500 DLH
Variable costs
Indirect labor ($1.00)		$8,500		$8,800		$300	U
Indirect materials ($0.70)		5,950		5,800		150	F
Utilities ($0.40)		3,400		3,200		200	F
Total variable costs ($2.10)		17,850		17,800		50	F
Fixed costs
Supervision		4,000		4,000		?
Depreciation		1,200		1,200		?
Property taxes		800		800		?
Total fixed costs		6,000		6,000		?
Total costs		$23,850		$23,800		$50	F

Comment on the findings of manufacturing overhead flexible budget report using the two different direct labor hours 9,000 and 8,500.