Question
Zelmer Company manufactures tablecloths. Sales have grown rapidly over the past 2 years. As a result, the president has installed a budgetary control system for
Zelmer Company manufactures tablecloths. Sales have grown rapidly over the past 2 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, which is based on an activity index of direct labor hours.
Variable costs | Rate per Direct Labor Hour | Annual Fixed Costs | ||||
Indirect labor | $0.40 | Supervision | $48,000 | |||
Indirect materials | 0.50 | Depreciation | 18,000 | |||
Factory utilities | 0.30 | Insurance | 12,000 | |||
Factory repairs | 0.20 | Rent | 30,000 |
The master overhead budget was prepared on the expectation that 480,000 direct labor hours will be worked during the year. In June, 41,000 direct labor hours were worked. At that level of activity, actual costs were as shown below. Variableper direct labor hour: indirect labor $0.44, indirect materials $0.48, factory utilities $0.32, and factory repairs $0.25. Fixed: same as budgeted.
ZELMER COMPANY Ironing Department Manufacturing Overhead Flexible Budget Report For the Month Ended June 30, 2020 | |||||||
Difference | |||||||
Budget | Actual Costs | Favorable F Unfavorable U | |||||
Direct labor hours (DLH) | 41,000 DLH | 41,000 DLH | |||||
Variable costs | |||||||
Indirect labor | $16,400 | $18,040 | $1,640 | U | |||
Indirect materials | 20,500 | 19,680 | 820 | F | |||
Factory utilities | 12,300 | 13,120 | 820 | U | |||
Factory repairs | 8,200 | 10,250 | 2,050 | U | |||
Total variable costs | 57,400 | 61,090 | 3,690 | U | |||
Fixed costs | |||||||
Supervision | 4,000 | 4,000 | 0 | ||||
Depreciation | 1,500 | 1,500 | 0 | ||||
Insurance | 1,000 | 1,000 | 0 | ||||
Rent | 2,500 | 2,500 | 0 | ||||
Total fixed costs | 9,000 | 9,000 | 0 | ||||
Total costs | $66,400 | $70,090 | $3,690 | U |
1-Were costs effectively controlled? Explain.
2-Prepare the flexible budget graph, showing total budgeted costs at 35,000 and 45,000 direct labor hours. Use increments of 5,000 direct labor hours on the horizontal axis and increments of $10,000 on the vertical axis.
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