Assignment Problem: Budgetary Control and Responsibility Accounting
Zelmer Company manufactures table clothes. Sale have grown rapidly over the past two years. As a result, the president has installed a budgetary control system for 2017. 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 Labour Hour
|
Annual Fixed Costs
|
|
Indirect labour
|
$0.40
|
Supervision
|
$48,000
|
|
Indirect materials
|
0.5
|
Depreciation
|
18,000
|
|
Factory utilities
|
0.3
|
Insurance
|
12,000
|
|
Factory repairs
|
0.2
|
Rent
|
30,000
|
The master overhead budget was prepared on the expectation that 480,000 direct labour hours will be worked during the year. In June, 41,000 direct labour hours were worked. At that level of activity, actual costs were as follows.
Variable-per direct labour hour:
Indirect labour $0.44
Indirect materials $0.48
Factory utilities $0.32
Factory repairs $0.25
Fixed: same as budgeted.
Assignment Instructions:
Q1. Prepare a monthly flexible manufacturing overhead budget for the year ending December 31, 2017, assuming production levels range from 35,000 to 50,000 direct labour hours. Use increments of 5,000 direct labour hours.
Q2. Prepare a budget performance report for June comparing actual results with budget data based on the flexible budget.
Q3. Were costs effectively controlled? Explain.
Q4. State the formula for calculating the total budgeted costs for Zelmer Company.
Q5. Prepare the 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.
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