Flexible budget for factory overhead
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
|
|
Supervisor’s 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 semifixed 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 epxense 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 1105% 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.