Problem 8.40 Flexible Budget The controller for Muir Company\'s Salem plant is a
ID: 2444727 • Letter: P
Question
Problem 8.40
Flexible Budget
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.
Required:
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: $
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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.
Prepare a flexible budget for overhead for the 12 months. Type the letter "F" in the last column of the table to indicate a favorable variance. Type the letter "U" to indicate an unfavorable variance. Enter all amounts as postive values.
Muir Company Flexible Budget for Overhead
Month
Predicted Overhead
Actual Overhead
Variance
Type ("F" or "U")
January
$
$
$
February
March
April
May
June
July
August
September
October
November
December
Totals
$
$
$
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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.
Type the letter "F" in the last column of the table to indicate a favorable variance. Type the letter "U" to indicate an unfavorable variance. Enter all your answers as positive amounts.
Muir Company Flexible Budget for Overhead
Month
Predicted Overhead
Actual Overhead
Variance
Type ("F" or "U")
January
$
$
$
February
March
April
May
June
July
August
September
October
November
December
Totals
$
$
$
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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.
Is this flexible budget better than the budget in Requirement 1?
- Select your answer -YesNoCorrect 1 of Item 4
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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.
HidePrepare a flexible budget for overhead for the 12 months. Type the letter "F" in the last column of the table to indicate a favorable variance. Type the letter "U" to indicate an unfavorable variance. Enter all amounts as postive values.
Muir Company Flexible Budget for Overhead
Month
Predicted Overhead
Actual Overhead
Variance
Type ("F" or "U")
January
$
$
$
February
March
April
May
June
July
August
September
October
November
December
Totals
$
$
$
Explanation / Answer
Answer:1 Overhead rate=Total overhead cost/Total estimated machine hours
=$423167/13446
=$31.47 per hour
Month Machine hours Predicted overhead Actual Overhead Variance Type F or U Jan 1000 31470 32296 -826 U Feb 930 29267.1 31550 -2282.9 U Mar 1100 34617 36280 -1663 U Apr 1050 33043.5 36867 -3823.5 U May 1170 36819.9 36790 29.9 F Jun 1200 37764 37800 -36 U Jul 1235 38865.45 40024 -1158.55 U Aug 1190 37449.3 39256 -1806.7 U Sep 1070 33672.9 33800 -127.1 U Oct 1210 38078.7 33779 4299.7 F Nov 1207 37984.29 37225 759.29 F Dec 1084 34113.48 27500 6613.48 F Total 13446 423145.62 423167 -21.38 U