Johnny Lee, Inc., produces a line of small gasoline engines that can be used in a variety of residential machines, ranging from different types of lawn mowers, snow blowers, and garden tools (such as cultivators and weed grinders) . The basic product line consists of three different models, each intended to meet the needs of a different market. Suppose you are the cost accountant for this business and the business owner has asked you to create a flexible budget for manufacturing overhead costs, which seem to be growing faster than revenue. Currently, the company uses machine hours (MH) as the basis for allocating fixed and variable factory overhead costs to products. 

Within the relevant range of production, determines that the following fixed overhead costs must occur per month: 

engineering support, $15,500;

manufacturing facility insurance, $5,500; 

property taxes on manufacturing facilities, $12,500; 

manufacturing equipment depreciation, $14,300; 

indirect labor costs: 

supervisory salaries, $15,300; 

installation labor, $2,900; 

materials handling, $3,000. 

Variable overhead costs are budgeted at $46 per machine hour, as follows: 

electricity, $13;

 indirect materials: 

Material A = $6, 

Material B = $9; 

maintenance labor, $11; and 

manufacturing supplies, $7. 500; 

property taxes on manufacturing facilities, $12,500; 

manufacturing equipment depreciation, $14,300; 

indirect labor costs: 

supervisory salaries, $15,300; 

installation labor, $2,900; 

materials handling, $3,000. 

Required

1. Prepare a flexible budget for Johnny Lee, Inc., for each of the following levels of monthly machine hours: 4,500; 5,500; and 6,500.

2. Generate an equation to represent, within the relevant range, the manufacturing overhead costs per month for Johnny Lee, Inc.

Answer rating: 100% (QA)

Lets calculate the flexible budget for each level of monthly machine hours MH 1 For 4500 machine hou... View the full answer