P10-2B Gonzalez Company produces one product, Olpe. Because of wide fluctuations in demand for Olpe, the Assembly Department experiences significant variations in monthly production levels.

The annual master manufacturing overhead budget is based on 300,000 direct labor hours. In July, 27,500 labor hours were worked. The master manufacturing overhead budget for the year and the actual overhead costs incurred in July are as follows.

Overhead Costs

Variable

Indirect labor Indirect materials Utilities Maintenance

Fixed

Supervision Depreciation Insurance and taxes

Master Budget (annual)

$300,000 150,000 90,000 60,000

144,000 96,000 60,000

Actual in July

$26,000 11,350 8,050 5,400

12,000 8,000 5,000

Total $900,000$75,800

Instructions

(a) Prepare monthly flexible overhead budget for the year ending December 31, 2014, assuming monthly production levels range from 22,500 to 30,000 direct labor hours. Use increments of 2,500 direct labor hours.

(b) Prepare budget report for the month of July 2014, comparing actual results with budget data based on the flexible budget.

(c) Were costs effectively controlled? Explain.

(d) State the formula for computing the total monthly budgeted costs in the Gonzalez

Company