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: $$\begin{array} { | l | l | } \hline \text { Machine setup } & \$ 0.20 \text { per machine-hour } \\\hline \text { Lubricants } & \$ 1.00 \text { per machine-hour plus } \$ 8,000 \text { per month } \\\hline \text { Utilities } & \$ 0.70 \text { per machine-hour } \\\hline \text { Indirect labor } & \$ 0.60 \text { per machine-hour plus } \$ 20,000 \text { per month } \\\hline \text { Depreciation } & \$ 32,000 \text { per month } \\\hline\end{array}$$
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: $$\begin{array} { | l | r | } \hline \text { Machine set-up } & \$ 4,800 \\\hline \text { Lubricants } & 24,500 \\\hline \text { Utilities } & 12,000 \\\hline \text { Indirect labor } &\underline{ 32,500} \\\hline \text { Depreciation } & 32,500 \\\hline & \$ 106,300 \\\hline\end{array}$$
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.