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

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 2016. 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 Supervisio

n

$45,00

0

Indirect

materials 0.75 Depreciatio

n 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, 2016, 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, $77,416 50,000 DLH, $106,666

(b)

Prepare a budget performance report for June, comparing actual results with budgeted

data based on the flexible budget.

Budget $102,766;

Actual $104,686

(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.