Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 10

Flexible Budgeting
At the beginning of last year, Jean Bingham, controller for Thorpe Inc., prepared the following budget for conversion costs at two levels of activity for the coming year:

During the year, the company worked a total of 112,000 direct labor hours and incurred the following actual costs:

Thorpe applied overhead on the basis of direct labor hours. Normal volume of 120,000 direct labor hours is the activity level to be used to compute the predetermined overhead rate.
Required:
1. Determine the cost formula for each of Thorpe's conversion costs. ( Hint : Use the high-low method.)
2. CONCEPTUAL CONNECTION Prepare a performance report for Thorpe's conversion costs for last year. Should any cost item be given special attention? Explain.