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Module 5 Exercises Problem 1 Frizell Company is preparing its manufacturing overhead budget for 2011. Relevant data consist of the following. Units to be produced (by quarters): 10,000, 12,000, 14,000, and 16,000 Direct labor: Time is 1.5 hours per unit Variable overhead costs per direct labor hour: Indirect materials $0.70; indirect labor $1.20; and maintenance $0.50 Fixed overhead costs per quarter: Supervisory salaries $35,000; depreciation $16,000; and maintenance $12,000 Prepare the manufacturing overhead budget for the year, showing quarterly data. Problem 2 Jake Palermo has prepared the following list of statements about budgetary control. Identify each statement as true or false. If false, indicate how to correct the statement. 1. 2. 3. 4. 5. 6. 7. 8. 9. Budget reports compare actual results with planned objectives. All budget reports are prepared on a weekly basis. Management uses budget reports to analyze differences between actual and planned results and determine their causes. As a result of analyzing budget reports, management may either take corrective action or modify future plans. Budgetary control works best when a company has an informal reporting system. The primary recipient of the scrap report is the production manager. A static budget is a projection of budget data at one level of activity. Top management's reaction to unfavorable differences is not influenced by the materiality of the difference. A static budget is not appropriate in evaluating a manager's effectiveness in controlling costs unless the actual activity level approximates the static budget activity level or the behavior of the costs is fixed. Temp plate EXERCISE 9-10 FRIZELL COMPANY Manufacturing Overhead Budget For the Year Ending December 31, 2011 Quarter 1 Variable costs Indirect materials Indirect labor Maintenance Total variable Fixed costs Supervisory salaries Depreciation Maintenance Total fixed Total manufacturing overhead Direct labor hours Manufacturing overhead rate per direct labor hour EXERCISE 10-1 1. 2. 3. 4. 5. 6. 7. 2 3 4 Year 8. 9. 10