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.
P7-6
Flexible budget for factory
overhead
P7-6 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.
Factory Overhead Cost Budget
Fixed cost:
Depreciation on building and
machinery 1,200
Taxes on building and
machinery 500
Insurance on building and
machinery 500
Superintendent's salary 1,500
Supervisors'
salaries
2,300
Maintenance
wages 1,000
7,000
Variable cost:
Repairs
400
Maintenance supplies 300
Other supplies 200
Payroll taxes 800
Small tools
300
2,000
Total standard factory
overhead
$9,000
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 rate for application of factory overhead to
work in process 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. (Hint: Set up a third category for semi fixed
expenses).
a. At 110% of capacity, an
assistant department head will be needed at a salary of $10,500 annually.
b. At 80% of capacity, the
repairs expense will drop to one-half of the amount at 100% capacity.
c. Maintenance supplies
expense will remain constant at all levels of
production.
d. At 80% of capacity, one part-time
maintenance worker, earning $6,000 a year, will be laid off.
e. 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 ten-year life,
and straight-line depreciation will be taken.
3. Using the facts and the
flexible budget prepared in 1, determine the budgeted cost at 96% of capacity,
using interpolation.
4. Using the flexible
budget prepared in 1, determine the budgeted cost at 104% capacity, using a
method other than interpolation.
TUTORIAL PREVIEW
Problem 7-6
1.
|
Factory Overhead Cost
Budget
|
|||
|
Percent of normal
capacity
|
80%
|
90%
|
110%
|
|
Number of units
|
4,000
|
4,500
|
5,500
|
|
Number of standard direct
labor hours
|
16,000
|
18,000
|
22,000
|
|
Budgeted factory
overhead:
|
|||
File name: P7-6 Flexible budget.xls File type: xls PRICE: $8
