Presented below are the monthly factory overhead cost budget (at normal capacity of 5,000 units or 20,000 direct labor hours) and the production and cost data for a month. The predetermined overhead rate is based on normal capacity. Factory Overhead
Factory Overhead Cost Budget
1. Assuming that variable costs will vary in direct proportion to the change in volume, prepare a flexible budget for production levels of 80%, 90%, and 110% of normal capacity. Also determine the predetermined factory overhead rate at each level of volume in both units and direct labor hours.
2. Prepare a flexible budget for production levels of 80%, 90%, and 110%, assuming that variable costs will vary in direct proportion to the change in volume, but with the following exceptions.
a. At 110% of capacity, another supervisor will be needed at a salary of $24,000 annually.
b. At 80% of capacity, the repairs expense will drop to one-half of the amount at 100% capacity.
c. At 80% of capacity, one part-time maintenance worker, earning $10,000 a year, will be laid off.
d. At 110% of capacity, a machine not normally in use and on which no depreciation is normally recorded will be used in production. Its cost was $12,000, it has a 10-year life, and straight-line depreciation will be taken.
Fixed cost: $1,200 500 500 3,000 . 4,600 Insurance on building and machinery Supervisors' salaries 2,000 $11,800 Variable cost: Repairs Maintenance supplies 300 200 800 300 2,000 Total standard factory overhead …… S13,800
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