Budgetary Planning and Responsibility Accounting
22 – 41
Ex. 182
Cody Co. developed its annual manufacturing overhead budget for its master budget for 2013 as
follows:
Expected annual operating capacity 120,000 Direct Labor Hours
Variable overhead costs
Indirect labor $600,000
Indirect materials 120,000
Factory supplies 60,000
Total variable 780,000
Fixed overhead costs
Depreciation 240,000
Supervision 120,000
Property taxes 96,000
Total fixed 456,000
Total costs $1,236,000
The relevant range for monthly activity is expected to be between 8,000 and 12,000 direct labor
hours.
Instructions
Prepare a flexible budget for a monthly activity level of 8,000 and 9,000 direct labor hours.
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Ex. 183
Copper Manufacturing has prepared the following monthly flexible manufacturing overhead
budget for its Mixing Department:
COPPER MANUFACTURING
Monthly Flexible Manufacturing Overhead Budget
Mixing Department
Activity level
Direct labor hours 3,000 4,000
Variable costs
Indirect materials $ 3,000 $ 4,000
Indirect labor 15,000 20,000
Factory supplies 4,500 6,000
Total variable 22,500 30,000
Fixed costs
Depreciation 20,000 20,000
Supervision 12,000 12,000
Property taxes 15,000 15,000
Total fixed 47,000 47,000
Total costs $69,500 $77,000
Instructions
Prepare a flexible budget at the 5,000 direct labor hours of activity.
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Ex. 184
Berne, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable
manufacturing overhead costs per machine hour are as follows:
Indirect labor $5.00
Indirect materials 2.50
Maintenance .80
Utilities .30
Fixed overhead costs per month are:
Supervision $800
Insurance 200
Property taxes 300
Depreciation 900
The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per
month.
Instructions
Prepare a flexible manufacturing overhead budget for the expected range of activity, using
increments of 1,000 machine hours.
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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Ex. 185
Telemark Production‘s manufacturing costs for July when production was 2,000 units appears
below:
Direct materials $10 per unit
Factory depreciation $16,000
Variable overhead 10,000
Direct labor 4,000
Factory supervisory salaries 11,600
Other fixed factory costs 3,000
Instructions
How much is the flexible budget manufacturing cost amount for a month when 2,200 units are
produced?
Ex. 186
Webb, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable
manufacturing overhead costs per machine hour are as follows:
Indirect labor $5.00
Indirect materials 2.50
Maintenance .50
Utilities .30
Fixed overhead costs per month are:
Supervision $1,200
Insurance 400
Property taxes 600
Depreciation 1,800
The company believes it will normally operate in a range of 4,000 to 8,000 machine hours per
month. During the month of August, 2013, the company incurs the following manufacturing
overhead costs:
Indirect labor $28,000
Indirect materials 16,200
Maintenance 2,800
Utilities 1,900
Supervision 1,440
Insurance 400
Property taxes 600
Depreciation 1,860
Budgetary Planning and Responsibility Accounting
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Ex. 186 (Cont.)
Instructions
Prepare a flexible budget report, assuming that the company used 6,000 machine hours during
August.
Ex. 187
Lapp Manufacturing uses flexible budgets to control its selling expenses. Monthly sales are
expected to be from $400,000 to $480,000. Variable costs and their percentage relationships to
sales are:
Sales commissions 6%
Advertising 4%
Traveling 5%
Delivery 1%
Fixed selling expenses consist of sales salaries $80,000 and depreciation on delivery equipment
$20,000.
Instructions
Prepare a flexible budget for increments of $40,000 of sales within the relevant range.
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Ex. 188
Cadiz Co. uses flexible budgets to control its selling expenses. Monthly sales are expected to be
from $300,000 to $360,000. Variable costs and their percentage relationships to sales are:
Sales commissions 5%
Advertising 4%
Traveling 7%
Delivery 1%
Fixed selling expenses consist of sales salaries $40,000 and depreciation on delivery equipment
$10,000.
The actual selling expenses incurred in February, 2013, by Cadiz are as follows:
Sales commissions $17,200
Advertising 12,000
Traveling 23,700
Delivery 2,400
Fixed selling expenses consist of sales salaries $41,500 and depreciation on delivery equipment
$10,000.
Instructions
Prepare a flexible budget performance report, assuming that February sales were $330,000.
Budgetary Planning and Responsibility Accounting
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Ex. 189
A flexible budget graph for the Assembly Department shows the following:
1. At zero direct labor hours, the total budgeted cost line intersects the vertical axis at $120,000.
2. At normal capacity of 50,000 direct labor hours, the line drawn from the total budgeted cost
line intersects the vertical axis at $360,000.
Instructions
Develop the budgeted cost formula for the Assembly Department and identify the fixed and
variable costs.
Ex. 190
Ace Production Co. has two production departments, Fabricating and Assembling. At a
department managers‘ meeting, the controller uses flexible budget graphs to explain total
budgeted costs. Separate graphs based on direct labor hours are used for each department. The
graphs show the following.
1. At zero direct labor hours, the total budgeted cost line and the fixed cost line intersect the
vertical axis at $100,000 in the Fabricating Department, and $80,000 in the Assembling
Department.
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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Ex. 190 (Cont.)
2. At normal capacity of 100,000 direct labor hours, the line drawn from the total budgeted cost
line intersects the vertical axis at $360,000 in the Fabricating Department, and $290,000 in
the Assembling Department.
Instructions
(a) State the total budgeted cost formula for each department.
(b) Compute the total budgeted cost for each department, assuming actual direct labor hours
worked were 106,000 and 94,000, in the Fabricating and Assembling Departments,
respectively.
Ex. 191
Hubbard, Inc.’s static budget at 3,000 units of production includes $12,000 for direct labor, $3,000
for utilities (variable), and total fixed costs of $24,000. Actual production and sales for the year
was 9,000 units, with an actual cost of $70,800.
Instructions
Determine if Hubbard is over or under budget.
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Ex. 192
Campbell Clothing produces men’s ties. The following budgeted and actual amounts are for 2013:
Cost Budget at 5,000 Units Actual Amounts at 5,800 Units
Direct materials $60,000 $71,000
Direct labor 75,000 86,500
Equipment depreciation 5,000 5,000
Indirect labor 7,500 8,600
Indirect materials 9,000 9,600
Rent and insurance 12,000 13,000
Instructions
Prepare a performance budget report for Campbell Clothing for the year.
Ex. 193
Data concerning manufacturing overhead for Wilson Industries are presented below. The Mixing
Department is a cost center.
An analysis of the overhead costs reveals that all variable costs are controllable by the manager
of the Mixing Department and that 50% of supervisory costs are controllable at the department
level.
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Ex. 193 (Cont.)
The flexible budget formula and the cost and activity for the months of July and August are as
follows:
Flexible Budget Per
Direct Labor Hour Actual Costs and Activity
July August
Direct labor hours 6,000 7,000
Overhead costs
Variable
Indirect materials $3.50 $ 20,500 $ 25,100
Indirect labor 6.00 39,500 40,700
Factory supplies 1.00 7,600 8,200
Fixed
Depreciation $20,000 15,000 15,000
Supervision 25,000 23,000 26,000
Property taxes 10,000 12,000 12,000
Total costs $117,600 $127,000
Instructions
(a) Prepare the responsibility reports for the Mixing Department for each month.
(b) Comment on the manager’s performance in controlling costs during the two month period.
Ex. 194
Strickland Corp.‘s manufacturing overhead budget for the first quarter of 2013 contained the
following data:
Variable Costs
Indirect materials $40,000
Indirect labor 24,000
Utilities 20,000
Maintenance 12,000
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Ex. 194 (Cont.)
Fixed Costs
Supervisor’s salary $80,000
Depreciation 16,000
Property taxes 8,000
Actual variable costs for the first quarter were:
Indirect materials $37,200
Indirect labor 26,400
Utilities 21,000
Maintenance 10,600
Actual fixed costs were as expected except for property taxes which were $9,000. All costs are
considered controllable by the department manager except for the supervisor’s salary.
Instructions
Prepare a manufacturing overhead responsibility performance report for the first quarter.
Ex. 195
The Deluxe Division, a profit center of Riley Manufacturing Company, reported the following data
for the first quarter of 2013:
Sales $9,000,000
Variable costs 6,300,000
Controllable direct fixed costs 1,200,000
Noncontrollable direct fixed costs 530,000
Indirect fixed costs 300,000
Instructions
(a) Prepare a performance report for the manager of the Deluxe Division.
(b) What is the best measure of the manager’s performance? Why?
(c) How would the responsibility report differ if the division was an investment center?
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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Solution 195 (15–20 min.)
Ex. 196
Danner Co. has three divisions which are operated as profit centers. Actual operating data for the
divisions listed alphabetically are as follows.
Operating Data Women’s Shoes Men’s Shoes Children’s Shoes
Contribution margin $280,000 (3) $220,000
Controllable fixed costs 130,000 (4) (5)
Controllable margin (1) $ 90,000 96,000
Sales 800,000 480,000 (6)
Variable costs (2) 330,000 250,000
Instructions
(a) Compute the missing amounts. Show computations.
(b) Prepare a responsibility report for the Women’s Shoe Division assuming (1) the data are for
the month ended June 30, 2013, and (2) all data equal budget except variable costs which
are $20,000 over budget.