E24-4 Prepare flexible budget reports for manufacturing overhead costs, and comment on findings
Thome Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
Indirect labor $1.00
Indirect materials $0.60
Fixed overhead costs per month are supervision $4,000, depreciation, $1,200, and property taxes $800. The company believes it will normally operate in a range of 7,000 – 10,000 direct labor hours per month.
Using the information above, assume that in July 2014, Thome Company incurs the following manufacturing overhead costs.
Variable Costs Fixed Costs
Indirect labor $8,800 Supervision $4,000
Indirect materials 5,300 Depreciation 1,200
Utilities 3,200 Property taxes 800
(a) Prepare a flexible budget performance report, assuming that the company worked 9,000 direct labor hours during the month.
(b) Prepare a flexible budget performance report, assuming that the company worked 8,500 direct labor hours during the month.
(c ) Comment on your findings.