Luxor Fashions manufactures very high-quality traditional men's suits that are sold in exclusive men's stores around the world. Luxor opened a new factory in Italy two years ago to employ the best Italian tailors to cut, assemble, and stitch high-fashion mens' business attire. The business plan for the new factory called for 250 tailors, each working 2,000 hours per year. Overhead is allocated to individual suits based on the number of direct labor hours in the suit. Luxor uses a flexible overhead budget to estimate its overhead rate. Fixed manufacturing overhead next year is budgeted at 26.05 million euros, and variable manufacturing overhead is budgeted at 20 euros per direct labor hour. The following table provides next year's production schedule and the number of expected (budgeted) direct labor hours per suit style:

Luxor Fashions

Planned Production Schedule and Budgeted

Direct Labor Hours per Suit Style Next Year

Required:
a. Calculate Luxor's overhead rate for next year using expected volume.
b. Calculate Luxor's overhead rate for next year using normal volume.
c. Discuss the advantages and disadvantages of using expected volume in calculating factory overhead rates.
d. Which method (expected or normal volume) is more widely used?
e. What conclusions do you draw from your answer in part (d)?

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Production Budget Model (Number of Suits) Budgeted Direct Labor Hours per Suit 2.0 3.0 1.0 4.0 2.5 Suit Model 17,000 43,000 62,000 49,000 40,000 #108 #211 #243 #368 #789