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The Panhandle Corporation operates its production departments under a flexible budget with monthly allowances established for 20% intervals
The Panhandle Corporation operates its production departments under a flexible budget with monthly allowances established for 20% intervals. Capacity is based on direct labor hours with 2,500 direct labor hours representing 100% normal capacity. In the month of October the Shelving Department operated at the 87% level. The exhibit shows budget allowances at the 80% and 100% levels. Flexible Budget Percentage of Capacity Direct labor hours Direct labor costs 80% 2,000 $4,000 100% 2,500 $5,000 Foreman's salary........ Indirect labor.... Clerical salaries.. Factory supplies.. Depreciation... Taxes..... Insurance.. Maintenance. Power $ 500 1,350 700 430 500 250 200 380 360 Total indirect expenses $4,670 $ 500 1,500 750 500 500 250 200 400 400 $5,000 Factory overhead rate $2.335 $2.00 Required: A detailed flexible budget for the 87% level.
Expert Solution
| Percentage of Capacity | 80% | 100% | 87% | Remarks |
| Direct labor Hours | 2,000 | 2,500 | 2,175 | |
| Direct labor costs | $ 4,000 | $ 5,000 | $ 4,350 | (5000/2500 = 2/labor hour) |
| Foreman's Salary | $ 500 | $ 500 | $ 500 | Fixed cost |
| Indirect Labor | $ 1,350 | $ 1,500 | $ 1,403 | Semi-variable cost (refer note) |
| Clerical salaries | $ 700 | $ 750 | $ 718 | Semi-variable cost (refer note) |
| Factory supplies | $ 430 | $ 500 | $ 455 | Semi-variable cost (refer note) |
| Depreciation | $ 500 | $ 500 | $ 500 | Fixed cost |
| Taxes | $ 250 | $ 250 | $ 250 | Fixed cost |
| Insurance | $ 200 | $ 200 | $ 200 | Fixed cost |
| Maintenance | $ 380 | $ 400 | $ 387 | Semi-variable cost (refer note) |
| Power | $ 360 | $ 400 | $ 374 | Semi-variable cost (refer note) |
| Total Indirect expenses | $ 4,670 | $ 5,000 | $ 4,786 | |
| Factory overhead Rate | $ 2.335 | $ 2.000 | $ 2.200 | |
| (Total Indirect exp/labor hours) |
Note: Semi-variable cost
| a | b | c = (b-a) | d | e | f = (b-e) | g | h = (f+g) | ||
| Sr. No. | Pariculars | 80% | 100% | Variance | Cost/labor hour | Variable cost@100% | Fixed cost | Variable cost@87% | Total Semi-variable cost |
| 1 | Direct labor Hours | 2,000 | 2,500 | 500 | 2,500 | 2175 | |||
| 2 | Indirect Labor | $ 1,350 | $ 1,500 | $ 150 | $ 0.30 | $ 750 | $ 750 | $ 653 | $ 1,403 |
| 3 | Clerical salaries | $ 700 | $ 750 | $ 50 | $ 0.10 | $ 250 | $ 500 | $ 218 | $ 718 |
| 4 | Factory supplies | $ 430 | $ 500 | $ 70 | $ 0.14 | $ 350 | $ 150 | $ 305 | $ 455 |
| 5 | Maintenance | $ 380 | $ 400 | $ 20 | $ 0.04 | $ 100 | $ 300 | $ 87 | $ 387 |
| 6 | Power | $ 360 | $ 400 | $ 40 | $ 0.08 | $ 200 | $ 200 | $ 174 | $ 374 |
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