The Elon Company Had Great Difficulty in Controlling Overhead Costs

Essay

The Elon Company had great difficulty in controlling overhead costs. At a recent convention, the president heard about a control device for overhead costs known as a flexible budget and she has hired you to implement this budgeting program. After some effort, you develop the following cost formulas for the company's machining department. These costs are based on a normal operating range of 15,000 to 23,000 machine-hours per month:
$$\begin{array} { l l l } \text { Machine setup } & \$ 0.20 \mathrm { per } \text { machine-hour } \\\text { Lubricarts } & \$ 1.00 \text { er machine-hour plus } \$ 8,000 \text { per month } \\\text { Utilities } & \$ 0.70 \text { per machine-hour } \\\text { Indirect labor } & \$ 0.60 \text { per machine-hour plus } \$ 20,000 \text { per month } \\\text { Depreciation } & \$ 32,000 \text { per month }\end{array}$$
During March, the first month after your preparation of the above data, the machining department worked 18,000 machine-hours and produced 9,000 units of product. The actual costs of this production were:
$$\begin{array} { l r } \text { Machine set-up } & \$ 4,800 \\\text { Lubricarits } & 24,500 \\\text { Utilities } & 12,000 \\\text { Indirect labor } & 32,500 \\\text { Depreciation } & \underline{32,500} \\& \underline{\$ 106,300} \\\end{array}$$
The department had originally been budgeted to work 19,000 machine-hours during March.
Required:
Prepare a performance report for the machining department for the month of March including columns for the (a) actual results, (b) flexible budget, (c) flexible budget variance, (d) master budget, and (e) sales activity variance.