Question

Saved Help Save & Exit Check Direct materials (4.0 Ibs. @ $5.00 per Ib.) Direct labor (1.8 hrs. @ $12.00 per hr.) Overhead (1.8 hrs. @ $18.50 per hr.) Total standard cost $20.00 21.60 33.30 $74.90 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 Fixed overhead costs Depreciation-Building 23,000 Depreciation Machinery 71,000 Taxes and insurance 17,000 Supervision 253,500 Total fixed overhead costs Total overhead costs $135,000 364,500 $499,500

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

If at 75% capacity 20000u are produced, then at 65% the capacity would be 17334u* and at 85% the capacity would be 22667u**.

* At 65% capacity =65%×20000u÷75%=17334u

** At 85% capacity =85%×20000u÷75%=22667u

Flexible Budget for the month ended 31st october

Particulars	Variable Cost p.u	Total Fixed cost	At 65% capacity	At 75% Capacity	At 85% capacity
1.Sales(in units)			17334u	20000u	22667u
2.Total Variable overhead costs
Indirect Materials	$15000÷20000u=$0.75		$13000.5	$15000	$17000.25
Indirect Labor	$75000÷20000u=$3.75		$65002.5	$75000	$850001.25
Power	$15000÷20000u=$0.75		$13000.5	$15000	$17000.25
Repairs and maintenance	$30000÷20000u=$1.5		$26001	$30000	$34000.5
			$117004.5	$135000	$153002.25
3.Fixed Overhead costs
Depreciation-Building		$23000	$23000	$23000	$23000
Depreciation-Machinery		$71000	$71000	$71000	$71000
Taxes and Insurance		$17000	$17000	$17000	$17000
Supervision		$253500	$253500	$253500	$253500
			$364500	$364500	$364500
4.Total Overhead Costs			$481504.5	$499500	$517502.25