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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 Budge

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.

Jun 24 2020 View more View Less

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