
Concept explainers
1.
Prepare the flexible budget for the production levels of 80%, 90% and 110% of normal capacity and calculate the predetermined factory
1.

Explanation of Solution
Prepare the
Factory overhead cost budget | |||
Percent of normal capacity | 80% | 90% | 110% |
Number of units | 8,000 | 9,000 | 11,000 |
Number of standard direct labor hours | 24,000 | 27,000 | 33,000 |
Budgeted factory overhead: | |||
Fixed cost: | |||
$ 1,800 | $ 1,800 | $ 1,800 | |
Taxes on building and machinery | $ 750 | $ 750 | $ 750 |
Insurance on building and machinery | $ 800 | $ 800 | $ 800 |
Superintendent's salary | $ 4,400 | $ 4,400 | $ 4,400 |
Supervisors' salaries | $ 6,200 | $ 6,200 | $ 6,200 |
Maintenance wages | $ 1,500 | $ 1,500 | $ 1,500 |
Total fixed cost | $ 15,450 | $ 15,450 | $ 15,450 |
Variable cost: | |||
Repairs | $ 480 | $ 540 | $ 660 |
Maintenance supplies | $ 360 | $ 405 | $ 495 |
Other supplies | $ 240 | $ 270 | $ 330 |
Payroll taxes | $ 960 | $ 1,080 | $ 1,320 |
Small tools | $ 480 | $ 540 | $ 660 |
Total variable cost | $ 2,520 | $ 2,835 | $ 3,465 |
Total factory overhead cost | $ 17,970 | $ 18,285 | $ 18,915 |
Table (1)
Calculate the predetermined factory overhead rate.
2.
Prepare the flexible budget for the production levels of 80%, 90% and 110% by assuming that the variable costs will differ in the portion to the change in volume with certain exceptions.
2.

Explanation of Solution
Prepare the factory overhead cost budget.
Factory overhead cost budget | |||
Percent of normal capacity | 80% | 90% | 110% |
Number of units | 8,000 | 9,000 | 11,000 |
Budgeted factory overhead: | |||
Fixed cost: | |||
Taxes on building and machinery | $ 750 | $ 750 | $ 750 |
Insurance on building and machinery | $ 800 | $ 800 | $ 800 |
Superintendent's salary | $ 4,400 | $ 4,400 | $ 4,400 |
Total fixed cost | $ 5,950 | $ 5,950 | $ 5,950 |
Semi variable cost: | |||
Depreciation of building and machinery (1) | $ 1,800 | $ 1,800 | $ 1,950 |
Supervisor’s salaries (2) | $ 6,200 | $ 6,200 | $ 8,450 |
Maintenance wages (3) | $ 750 | $ 1,500 | $ 1,500 |
Repairs (4) | $ 300 | $ 540 | $ 660 |
Total semi variable cost | $9,050 | $10,040 | $12,560 |
Variable cost: | |||
Other supplies | $240 | $270 | $330 |
Payroll taxes | $960 | $1,080 | $1,320 |
Small tools | $480 | $540 | $660 |
Maintenance supplies | $360 | $405 | $495 |
Total variable cost | $2,040 | $2,295 | $2,805 |
Total factory overhead cost | $17,040 | $18,285 | $21,315 |
Table (2)
Working note (1): Calculate the semivariable cost for depreciation of building and machinery for 110%.
Working note (2): Calculate the semivariable cost for supervisors’ salaries for 110%.
Working note (3): Calculate the semivariable cost for Maintenance wages for 80%.
Working note (4): Calculate the semivariable cost for repairs for 80%.
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Chapter 7 Solutions
Principles of Cost Accounting
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