High Arctic Manufacturing Company produces one product, Kebo. Because of wide fluctuations in the demand for Kebo, the assembly department has significant variations in its monthly production levels. The annual master manufacturing overhead budget is based on 300,000 direct labour hours. In July, 27,500 labour hours were worked. The master manufacturing overhead budget for the year and the actual overhead costs incurred in July are as follows: Instructions (a) Prepare a monthly flexible overhead budget for the year ending December 31, 2016, assuming monthly production levels range from 22,500 to 30,000 direct labour hours. Use increments of 2,500 direct labour hours. (b) Prepare a budget performance report for the month of July 2016, comparing actual results with budgeted data, based on the flexible budget. (c) Were costs controlled effectively? Explain. (d) State the formula for calculating the total monthly budgeted costs for High Arctic Manufacturing Company. (e) Prepare a flexible budget graph showing total budgeted costs at 25,000 and 27,500 direct labour hours. Use increments of 5,000 on the horizontal axis and increments of $10,000 on the vertical axis.

Overhead costs Master budget(annual) Actual in July

Variable

Indirect labour $330,000 $29,000

Indirect Materials 180,000 14,000

Utilities 150,000 13,900

Maintenance 90,000 8,350

Fixed

Supervision 150,000 12,500

Depreciation 96,000 8,000

Insurance and taxes 60,000 5,000

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Total $1,056,000 $90,000

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