The Elon Company Had Great Difficulty in Controlling Overhead Costs

question 113

Essay

The Elon Company had great difficulty in controlling overhead costs.At a recent convention,the president heard about a control device for overhead costs known as a flexible budget and she has hired you to implement this budgeting program.After some effort,you develop the following cost formulas for the company's machining department.These costs are based on a normal operating range of 15,000 to 23,000 machine-hours per month: $$\begin{array} { | l | l | } \hline \text { Machine setup } & \$ 0.20 \text { per machine-hour } \\\hline \text { Lubricants } & \$ 1.00 \text { per machine-hour plus } \$ 8,000 \text { per month } \\\hline \text { Utilities } & \$ 0.70 \text { per machine-hour } \\\hline \text { Indirect labor } & \$ 0.60 \text { per machine-hour plus } \$ 20,000 \text { per month } \\\hline \text { Depreciation } & \$ 32,000 \text { per month } \\\hline\end{array}$$
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: $$\begin{array} { | l | r | } \hline \text { Machine set-up } & \$ 4,800 \\\hline \text { Lubricants } & 24,500 \\\hline \text { Utilities } & 12,000 \\\hline \text { Indirect labor } &\underline{ 32,500} \\\hline \text { Depreciation } & 32,500 \\\hline & \$ 106,300 \\\hline\end{array}$$
The department had originally been budgeted to work 19,000 machine-hours during March.Required:
Prepare a performance report for the machining department for the month of March including columns for the (a)actual results, (b)flexible budget, (c)flexible budget variance, (d)master budget,and (e)sales activity variance.

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Definitions:

Acid-Base Balance

The mechanism by which the human body maintains its blood pH within a narrow range, crucial for normal bodily functions.

Metabolic Acidosis

A condition characterized by a deficiency of bicarbonate ions in the body in relation to the amount of carbonic acid in the body, in which the pH falls to lower than 7.35.

Respiratory Alkalosis

A state of excessive loss of carbon dioxide from the body.

Antibiotic Solution

A liquid formulation containing antibiotics, used to treat or prevent bacterial infections.