# I-Asgn8 - LESSON 8 Assignment Question 1(20 marks Computer...

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LESSON 8 Assignment Question 1 (20 marks) Computer question Durant Company has had great difficulty in controlling manufacturing overhead costs. At a recent convention, the president heard about a control device for overhead costs known as a flexible budget, and he has hired you to implement this budgeting program in Durant Company. After some effort, you have developed the following cost formulas for the company’s machining department. These costs are based on a normal operating range of 10,000 to 20,000 machine-hours (MH) per month: Cost Cost Formula Utilities €0.70 per MH Lubricants €1.00 per MH plus €8,000 per month Machine setup €0.20 per MH Indirect labour €0.60 per MH plus €120,000 per month Depreciation €32,000 per month 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 as follows: Utilities € 12,000 Lubricants 24,500 Machine setup 4,800 Indirect labour 132,500 Depreciation 32,000 €205,800 There were no variances in the fixed costs. The department has originally been budgeted to work 20,000 machine-hours during March. Required Use the procedure described below to complete worksheet L8Q1. From this worksheet, answer the following questions: a. (10 marks in total) (i) (5 marks) What is the budgeted total variable cost for 15,000 machine-hours? (ii) (5 marks) What is the budgeted total fixed cost for 20,000 machine-hours? Management Accounting Fundamentals Assignment 8 1

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b. (5 marks) What is the spending variance for machine setup on the overhead performance report for the month of March? c. (3 marks) What additional information would you need to have in order to compute an overhead efficiency variance for the department? d. (2 marks) Explain to the president how the flexible budget might be used for product costing purposes as well as for cost control purposes. Procedure You have been provided with a partially completed worksheet L8Q1. After reading the problem, complete the worksheet by following these steps: 1. Open the file MA1L8Q1. 2. Examine the layout of the worksheet. Rows 5 to 27 contain the data table. Rows 29 to 50 contain a partially completed flexible overhead budget, and rows 53 to 74 contain a partially completed overhead performance report. To complete requirement 1 1. Enter in cells C34 to E34 the formulas for the activity levels to be presented in the flexible budget based on the information in the data table. 2. Complete the overhead flexible budget by entering the required formulas in cells C36 to E49. Note that the formulas in rows 40, 43, and 50 have been pre-entered for you. To complete requirement 2 3. Enter the required formula in cell C57. 4. Complete the overhead performance report by entering the necessary formulas in rows 63 to 66 and rows 70 to 72.
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