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 Cost Budget

Required:
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.

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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