Johnny Lee Incorporated produces a line of small gasoline-powered engines that can be used in a variety of residential machines, ranging from different types of lawnmowers, to snowblowers, to garden tools (such as tillers and weed-whackers). The basic product line consists of three different models, each meant to fill the needs of a different market. Assume you are the cost accountant for this company and that you have been asked by the owner of the company to construct a flexible budget for factory overhead costs, which seem to be growing faster than revenues. Currently, the company uses machine hours (MHs) as the basis for assigning both variable and fixed factory overhead costs to products. Within the relevant range of output, you determine that the following factory fixed overhead costs per month should occur: engineering support, $15,200; insurance on the manufacturing facility, $5,200; property taxes on the manufacturing facility, $12,200; depreciation on manufacturing equipment, $14,000; and indirect labor costs of supervisory salaries, $15,000, setup labor, $2,600, and materials handling, $2,700. Variable factory overhead costs are budgeted at $31.00 per machine hour, as follows: electricity, $10.00; indirect materials for Material A of $3.00 and for Material B of $6.00; indirect labor—maintenance, $8.00; and production-related supplies, $4.00. Required: 1. Prepare a flexible budget for Johnny Lee for each of the following monthly levels of machine hours: (a) 4,200, (b) 5,200, and (c) 6,200. 2. Generate an equation to represent, within the relevant range, the factory overhead costs per month for Johnny Lee. Use this equation to estimate monthly total overhead cost for machine hours of 3,200 to 6,200, in increments of 500.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter4: Job Order Costing

Section: Chapter Questions

Problem 7EA: A company estimates its manufacturing overhead will be $750,000 for the next year. What is the...

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Question

Johnny Lee Incorporated produces a line of small gasoline-powered engines that can be used in a variety of residential machines, ranging from different types of lawnmowers, to snowblowers, to garden tools (such as tillers and weed-whackers). The basic product line consists of three different models, each meant to fill the needs of a different market. Assume you are the cost accountant for this company and that you have been asked by the owner of the company to construct a flexible budget for factory overhead costs, which seem to be growing faster than revenues. Currently, the company uses machine hours (MHs) as the basis for assigning both variable and fixed factory overhead costs to products.

Within the relevant range of output, you determine that the following factory fixed overhead costs per month should occur: engineering support, $15,200; insurance on the manufacturing facility, $5,200; property taxes on the manufacturing facility, $12,200; depreciation on manufacturing equipment, $14,000; and indirect labor costs of supervisory salaries, $15,000, setup labor, $2,600, and materials handling, $2,700. Variable factory overhead costs are budgeted at $31.00 per machine hour, as follows: electricity, $10.00; indirect materials for Material A of $3.00 and for Material B of $6.00; indirect labor—maintenance, $8.00; and production-related supplies, $4.00.

Required:

1. Prepare a flexible budget for Johnny Lee for each of the following monthly levels of machine hours: (a) 4,200, (b) 5,200, and (c) 6,200.

2. Generate an equation to represent, within the relevant range, the factory overhead costs per month for Johnny Lee. Use this equation to estimate monthly total overhead cost for machine hours of 3,200 to 6,200, in increments of 500.