Budgetary Control and Responsibility Accounting

Bumblebee Company estimates that 300,000 direct labor hours will be worked during the coming year, 2020, in the packaging Department. On this basis, the following budgeted manufacturing overhead cost data are computer for the yer.
Fixed Overhead CostsVariable Overhead Costs
Supervision$96,000Indirect labor$126,000
Depreciation72,000Indirect materials90,000
Property taxes18,000Lubricants18,000

It is estimated that direct labor hours worked each month will range from 27,000 to 36,000 hours

  • During October, 27,000 direct labor hours were worked and the following overhead costs were incurred.
  • Fixed overhead costs: supervision $8,000, depreciation $6,000, insurance $2,460, rent $2,0000, and property taxes $1,500
  • Variable overhead costs: indirect labor $12,432, indirect materials $7,680, repairs $6,100, utilities $6,840, and lubricants $1,920.


  1. Prepare a monthly manufacturing overhead flexible budget for each increment of 3,000 direct labor hours over the relevant range for the year ending December 31, 2021.
  2. Prepare a flexible budget report for October.
  3. Comment on management's efficiency in controlling manufacturing overhead costs in October.

Ratchet Company uses budgets in controlling costs. The August 2020 budget report for the company's Assembling Department is as follows.

Zelmer Company manufactures tablecloths. Sales have grown rapidly over the past 2 years. As a result, the president has installed a budgetary control system for 2020. The following data were used in developing the master manufacturing overhead budget for the Ironing Department, which is based on an activity index of direct labor hours.
The master overhead budget was prepared on the expectation that 480,000 direct labor hours will be worked during the year. In June 41,000 direct labor hours were worked. At that level of activity, actual costs were as shown below.
  • Variable-per direct labor hour: indirect labor $0.44, indirect materials $0.48, factory utilities $0.32, and factory repairs $0.25.
  • Fixed: same as budgeted.


  1. Prepare a monthly manufacturing overhead flexible budget for the year ending December 31, 2021, assuming production levels range from 35,000 to 50,000 direct labor hours. Use increments of 5,000 direct labor hours.
  2. Prepare a budget report for June comparing actual results with budget data based on he flexible budget.
  3. Were costs effectively controlled? Explain.
  4. State the formula for computing the total budgeted costs for the ironing Department
  5. Prepare the flexible budget graph, showing total budgeted costs at 35,000 and 45,000 direct labor hours. Use increments of 5,000 direct labor hours on the horizontal axis and increments of $10,000 on the vertical axis

Clarke Inc. operates the patio Furniture Division as a profit center. Operating data for this division for the year ended December 31, 2020, are as shown below.

Optimus Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2020, and relevant budget data are as follows.

Durham Company uses a responsibility system. It has division in Denver, Seattle, and San Diego. Each division has three production departments: Cutting, Shaping, and Finishing. The responsibility for each department rests with a manager who reports to the vision production manager. Each division manager reports to the vice president of production. There are also vice president for marketing and finance. All vice presidents report to the president.

Crede Company budgeted selling expenses of $30,000 in January, $35,000 in February, and $46,000 in March. Actual selling expenses were $31,200 in January, $34,525 in February, and $46,000 in March.

Myers Company uses a flexible for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.

Using the information in E24-3, assume that in July 2020, Myers Company incurs the following manufacturing overhead costs.

Fallon Company uses flexible budgets to control its selling expenses. Monthly sales are expected to range from $200,000. Variable costs and their percentage relationship to seals are sales commissions 6%, advertising 4%, traveling 3%, and delivery 2%. Fixed selling expenses will consist of sales salaries $35,000, depreciation on delivery equipment $7,000, and insurance on delivery equipment $1,000.

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