Problem 21-53 FLEXIBLE BUDGETING

At the beginning of last year, Jean Bingham, controller for Thorpe Inc., prepared the fol- lowing budget for conversion costs at two levels of activity for the coming year:

 

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

Direct Labor Hours 100,000     120,000

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

 

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

 

Required:

1.       Determine the cost formula for each of Thorpe’s conversion costs. (Hint: Use the high-low method.)

 

2.        Prepare a performance report for Thorpe’s conversion costs for last year. Should any cost item be given special attention? Explain.