Question

Flexible Budget

In an attempt to improve budgeting, the controller for Meliore, Inc., has developed a flexible budget for overhead costs. Meliore, Inc., makes two types of products, the standard model and the deluxe model. Meliore expects to produce 400,000 units of the standard model and 140,000 units of the deluxe model during the coming year. The standard model requires 0.05 direct labor hour per unit, and the deluxe model requires 0.08. The controller has developed the following cost formulas for each of the four overhead items:

	Cost Formula
Maintenance	$34,300 + $1.25 DLH
Power	$0.50 DLH
Indirect labor	$68,500 + $2.30 DLH
Rent	$31,700

Required:

1. Prepare an overhead budget for the expected activity level for the coming year.

Meliore, Inc.
Overhead Budget
For the Year Ended December 31
	Per DLH
Budgeted direct labor hours		DLH
Variable costs:
Maintenance	$	$
Power
Indirect labor
Total variable costs			$
Fixed costs:
Maintenance		$
Indirect labor
Rent
Total fixed costs
Total overhead costs			$

2. Prepare an overhead budget that reflects production that is 10 percent higher than expected (for both products).

Meliore, Inc.
Overhead Budget
For the Year Ended December 31
	Per DLH
Budgeted direct labor hours		DLH
Variable costs:
Maintenance	$	$
Power
Indirect labor
Total variable costs			$
Fixed costs:
Maintenance		$
Indirect labor
Rent
Total fixed costs
Total overhead costs			$

Prepare an overhead budget for production that is 20 percent lower than expected.

Meliore, Inc.
Overhead Budget
For the Year Ended December 31
	Per DLH
Budgeted direct labor hours		DLH
Variable costs:
Maintenance	$	$
Power
Indirect labor
Total variable costs			$
Fixed costs:
Maintenance		$
Indirect labor
Rent
Total fixed costs
Total overhead costs			$

Answer 1

Answer with working notes is given below

Meliore, Inc. Overhead Budget For the Year Ended December 31 Per DLH Budgeted direct labor hours 31,200 Variable costs: Maintenance $1.25 $39,000 Power $0.50 $15,600 Indirect labor $2.30 $71,760 Total variable costs Fixed costs: Maintenance $34,300 Indirect labor $68,500 Rent $31,700 Total fixed costs Total overhead costs $126,360 $134,500 $260,860 Working notes: Direct labor hours Total Production units Direct labor hour per unit Total Direct Labor hours Standard Model 400,000 0.05 20,000 Deluxe Model 140,000 0.08 11,200 31,200 Meliore, Inc. Overhead Budget For the Year Ended December 31 Per DLH Budgeted direct labor hours 34,320 Variable costs: Maintenance $1.25 $42,900 Power $0.50 $17,160 Indirect labor $2.30 $78,936 Total variable costs Fixed costs: Maintenance $34,300 Indirect labor $68,500 Rent $31,700 Total fixed costs Total overhead costs $138,996 $134,500 $273,496 Working notes: Direct labor hours Total Standard Model 440,000 0.05 22,000 Production units Direct labor hour per unit Total Direct Labor hours Deluxe Model 154,000 0.08 12,320 10% higher production 34,320 Meliore, Inc. Overhead Budget For the Year Ended December 31 Per DLH Budgeted direct labor hours 24,960 Variable costs: Maintenance $1.25 $31,200 Power $0.50 $12,480 Indirect labor $2.30 $57,408 Total variable costs Fixed costs: Maintenance $34,300 Indirect labor $68,500 Rent $31,700 Total fixed costs Total overhead costs $101,088 $134,500 $235,588 Working notes: Direct labor hours Total Standard Model 320,000 0.05 16,000 Production units Direct labor hour per unit Total Direct Labor hours Deluxe Model 112,000 0.08 8,960 20% lower production 24,960