P11.51B

Prepare a flexible budget, budget report, and graph for manufacturing overhead.

(LO 2, 3) Finesse Company manufactures tablecloths. Sales have grown rapidly over the past two years. As a result, the president has installed a budgetary control system for 2020. The following data were used in developing the master manufacturing overhead budget for the ironing department. The budget is based on an activity index of direct labour hours.

Variable Costs	Rate per Direct Labour Hour	Annual Fixed Costs
Indirect labour	$0.50	Supervision	$45,000
Indirect materials	0.75	Depreciation	20,000
Factory utilities	0.45	Insurance	15,000
Factory repairs	0.25	Rent	30,000

The company prepared the master overhead budget on the expectation that 600,000 direct labour hours would be worked during the year. In June, 48,000 direct labour hours were worked. At that level of activity, actual costs were as follows:

• 1.Variable, per direct labour hourindirect labour $0.53; indirect materials $0.70; factory utilities $0.47; and factory repairs $0.29.
• 2.Fixedsame as budgeted.

Instructions

a.

Prepare a monthly flexible manufacturing overhead budget for the year ending December 31, 2020, assuming production levels range from 35,000 to 50,000 direct labour hours per month. Use increments of 5,000 direct labour hours.

Total costs: 35,000 DLH, $77,417; 50,000 DLH, $106,667

b.

Prepare a budget performance report for June, comparing actual results with budgeted data based on the flexible budget.

Budget $102,767; Actual $104,687

c.

Were costs effectively controlled? Explain.

d.

State the formula for calculating the total budgeted costs for Finesse Company.

e.

Prepare a flexible budget graph, showing total budgeted costs at 35,000 and 45,000 direct labour hours. Use increments of 5,000 direct labour hours on the horizontal axis and increments of $10,000 on the vertical axis.