Question

Antuan Company set the following standard costs for one unit of its product.

Direct materials (5.0 Ibs. @ $5.00 per Ib.)	$	25.00
Direct labor (1.8 hrs. @ $12.00 per hr.)		21.60
Overhead (1.8 hrs. @ $18.50 per hr.)		33.30
Total standard cost	$	79.90

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials	$	15,000
Indirect labor		75,000
Power		15,000
Repairs and maintenance		30,000
Total variable overhead costs				$	135,000
Fixed overhead costs
Depreciation—Building		25,000
Depreciation—Machinery		70,000
Taxes and insurance		18,000
Supervision		251,500
Total fixed overhead costs					364,500
Total overhead costs				$	499,500

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (75,500 Ibs. @ $5.20 per lb.)				$	392,600
Direct labor (21,000 hrs. @ $12.20 per hr.)					256,200
Overhead costs
Indirect materials	$	41,000
Indirect labor		176,900
Power		17,250
Repairs and maintenance		34,500
Depreciation—Building		25,000
Depreciation—Machinery		94,500
Taxes and insurance		16,200
Supervision		251,500			656,850
Total costs				$	1,305,650

Required:
1&2. Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.

Answer 1

	Variable cost per unit	Fixed cost	65% (13,000 units)	75% (15,000 units)	85% (17,000 units)
Variable overhead cost:
Indirect material ($15,000/15,000)=$1	$1		$13,000	$15,000	$17,000
Indirect labor (75,000/15,000)=$5	5		65,000	75,000	85,000
Power (15,000/15,000)=$1	1		13,000	15,000	17,000
Repairs and maintenance (30,000/15,000)=$2	2		26,000	30,000	34,000
Total variable overhead cost	9		117,000	135,000	153,000
Fixed overhead cost:
Depreciation-Building		$25,000	25,000	25,000	25,000
Depreciation-Machinery		70,000	70,000	70,000	70,000
Taxes and insurance		18,000	18,000	18,000	18,000
Supervision		251,500	251,500	251,500	251,500
Total fixed overhead cost		364,500	364,500	364,500	364,500
Total overhead costs			$481,500	$499,500	$517,500