Problem 11-53         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:

Direct Labor Hours 100,000   120,000

Direct labor	$1,000,000	Â	$1,200,000
Supervision	180,000	Â	180,000
Utilities	18,000	Â	21,000
Depreciation	225,000	Â	225,000
Supplies	25,000	Â	30,000
Maintenance	240,000	Â	284,000
Rent	120,000	Â	120,000
Other	60,000	Â	70,000
Total manufacturing cost	$1,868,000	Â	$2,130,000

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

 

Direct labor	$963,200	Supplies	$  24,640
Supervision	190,000	Maintenance	237,000
Utilities	20,500	Rent	120,000
Depreciation	225,000	Other	60,500

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.

(Continued)

 

 

 

 

518                                                                     Chapter 11   Flexible Budgets and Overhead Analysis

 

 

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.