Country time Studios is a recording studio in Nashville. The studio budgets and applies overhead costs on the basis of production time. Country time’s controller anticipates 10,000 hours of production time to be available during the year. The following overhead amounts have been budgeted for the year.

Variable overhead .............$ 40,000

Fixed overhead .............. 90,000

Required:

1. Draw tow graphs, one for variable overhead and one for fixed overhead. The variable one the horizontal axis of each graph should be production time, in hours, ranging from 15,000 hours. The variable on the vertical axis of each graph should be overhead cost (variable). Each graph should include two lines, one for the flexible budget amount of overhead and one for applied overhead.

2. Write a brief memo to Country time Studio’s general manager, explaining the graph so that she will understand the concepts of budgeted and applied overhead.