The controller for Muir Company's Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting. She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on. Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table.

Month	Overhead Costs	Machine Hours	Number of Setups	Number of Purchase Orders
January	$ 32,296	1,000	20	216
February	31,550	930	18	250
March	36,280	1,100	21	300
April	36,867	1,050	23	270
May	36,790	1,170	22	285
June	37,800	1,200	25	240
July	40,024	1,235	27	237
August	39,256	1,190	24	303
September	33,800	1,070	20	255
October	33,779	1,210	22	195
November	37,225	1,207	23	270
December	27,500	1,084	15	150
Totals	$423,167	13,446	260	2,971

Required:

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1. Calculate an overhead rate based on machine hours using the total overhead cost and total machine hours. (Round the overhead rate to the nearest cent and predicted overhead to the nearest dollar.) Use this rate to predict overhead for each of the 12 months.

Overhead rate: $fill in the blank eed2b8002008042_1 per machine hour

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The overhead budget shows the expected cost of all indirect manufacturing items. It is based on variable and fixed overhead used in production. Decide which costs are fixed and which are variable and calculate.

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Prepare a flexible budget for overhead for the 12 months. If there is no variance, enter "0" for the amount and select "NA" in the last column. Enter all amounts as postive values.

blank blank Muir Company Flexible Budget for Overhead

Month	Predicted Overhead	Actual Overhead	Variance
January	$Unfavorable	$Unfavorable	$Unfavorable	FavorableUnfavorableNAUnfavorable
February	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
March	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
April	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
May	Favorable	Favorable	Favorable	FavorableUnfavorableNAFavorable
June	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
July	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
August	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
September	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
October	Favorable	Favorable	Favorable	FavorableUnfavorableNAFavorable
November	Favorable	Favorable	Favorable	FavorableUnfavorableNAFavorable
December	Favorable	Favorable	Favorable	FavorableUnfavorableNAFavorable
Totals	$Unfavorable	$Unfavorable	$Unfavorable	FavorableUnfavorableNAUnfavorable

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The overhead budget shows the expected cost of all indirect manufacturing items. It is based on variable and fixed overhead used in production. Decide which costs are fixed and which are variable and calculate.

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2. Run a regression equation using only machine hours as the independent variable. Prepare a flexible budget for overhead for the 12 months using the results of this regression equation. (Round the intercept and x-coefficient to the nearest cent and predicted overhead amount to the nearest dollar.)

If there is no variance, enter "0" for the amount and select "NA" in the last column. Enter all your answers as positive amounts.

Muir Company Flexible Budget for Overhead blank blank

Month	Predicted Overhead	Actual Overhead	Variance
January	$Favorable	$Favorable	$Favorable	FavorableUnfavorableNAFavorable
February	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
March	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
April	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
May	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
June	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
July	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
August	Unfavorable	Unfavorable	Unfavorable	FavorableUnfavorableNAUnfavorable
September	Favorable	Favorable	Favorable	FavorableUnfavorableNAFavorable
October	Favorable	Favorable	Favorable	FavorableUnfavorableNAFavorable
November	Favorable	Favorable	Favorable	FavorableUnfavorableNAFavorable
December	Favorable	Favorable	Favorable	FavorableUnfavorableNAFavorable
Totals	$Favorable	$Favorable	$Favorable	FavorableUnfavorableNAFavorable

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Total Costs = Fixed costs + (Variable cost per unit x output/activity level). Do another flexible budget using these results and compare. Which one is better? Explain.

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Is this flexible budget better than the budget in Requirement 1?

YesNo