Question

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Fixed Indirect materials $140,000 Depreciation $60,000 Indirect labor 200,000 Taxes 10,000 Factory supplies 20,000 Supervision 50,000 A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs?

Answer 1

$408,000

Step-by-step explanation:

Mainly there are two types of cost i.e variable cost and the fixed cost. The variable cost is that cost which is change when the production level change whereas the fixed cost is that cost which remains constant whether production level changes or not

So, the variable cost includes indirect material, indirect labor, and factory supplies

And, the fixed cost includes supervision, taxes ,and depreciation expense.

Now the fixed cost would be

= Supervision + depreciation expense + tax

= $50,000 + $60,000 + $10,000

= $120,000

For computing the variable cost, first we have to determine the variable cost per unit which is shown below:

= (Fixed Indirect materials + Indirect labor + factory supplies) ÷ expected activity level

= ($140,000 + $200,000 + $20,000) ÷ (1,00,000 machine hours)

= ($360,000) ÷ (1,00,000 machine hours)

= $3.6

For 80,000 machine hours, the variable cost would be

= 80,000 machine hours × $3.6

= $288,000

Now the total manufacturing overhead costs would equal to

= Fixed manufacturing overhead cost + variable manufacturing overhead cost

= $120,000 + $288,000

= $408,000