Question

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 300,000 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$34,600 + $1.25 DLH

Power$0.50 DLH

Indirect labor$68,500 + $2.30 DLH

Rent$31,100

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).

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

Answer 1

At Normal Production
		Units	DLH per unit	Total DLH
Standard Model		300000	0.05	15000
Deluxe Model		140000	0.08	11200
				26200
Overhead Budget
			Per DLH
Budgeted DLH				26200
Variable Costs
Maintenance			$           1.25	$ 32,750.00
Power			$           0.50	$ 13,100.00
Indirect Labor			$           2.30	$ 60,260.00
Total Variable Cost					$ 106,110.00
Fixed Costs
Maintenance				$ 34,600.00
Indirect Labor				$ 68,500.00
Rent				$ 31,100.00
Total Fixed Costs					$ 134,200.00
Total OH costs					$ 240,310.00

At 10% Higher Production Level
		Units	DLH per unit	Total DLH
Standard Model		330000	0.05	16500
Deluxe Model		154000	0.08	12320
				28820
Overhead Budget
			Per DLH
Budgeted DLH				28820
Variable Costs
Maintenance			$      1.25	$ 36,025.00
Power			$      0.50	$ 14,410.00
Indirect Labor			$      2.30	$ 66,286.00
Total Variable Cost					$ 116,721.00
Fixed Costs
Maintenance				$ 34,600.00
Indirect Labor				$ 68,500.00
Rent				$ 31,100.00
Total Fixed Costs					$ 134,200.00
Total OH costs					$ 250,921.00

At 20% Lower Production Level
		Units	DLH per unit	Total DLH
Standard Model		240000	0.05	12000
Deluxe Model		112000	0.08	8960
				20960
Overhead Budget
			Per DLH
Budgeted DLH				20960
Variable Costs
Maintenance			$      1.25	$ 26,200.00
Power			$      0.50	$ 10,480.00
Indirect Labor			$      2.30	$ 48,208.00
Total Variable Cost					$   84,888.00
Fixed Costs
Maintenance				$ 34,600.00
Indirect Labor				$ 68,500.00
Rent				$ 31,100.00
Total Fixed Costs					$ 134,200.00
Total OH costs					$ 219,088.00