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. The predetermined overhead rate is based on normal capacity.
Factory Overhead budget:
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Fixed cost
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|
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Depreciation on building and machinery
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$1,200
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|
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Taxes on building and machinery
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500
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|
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Insurance on building and machinery
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500
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|
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Superintendent's salary
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1,500
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|
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Supervisors' salaries
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2,300
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|
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Maintenance wages
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1,000
|
7,000
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Variable cost
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|
|
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Repairs
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$400
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|
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Maintenance supplies
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300
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|
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Other supplies
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200
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Payroll taxes
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800
|
|
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Small tools
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300
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2,000
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Total standard factory overhead
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$9,000
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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 of 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 proportions 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 expense will drop to one-half of the amount at 100% capacity. (At other levels it is perfectly variable.)
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.