Question

Evening star, incorporated produces binoculars of two quality levels: field and professional. the field model requires eight direct-labor hours, while the professional binoculars require ten hours. the firm uses direct-labor hours for flexible budgeting. 2. suppose the company based its flexible overhead budget for may on the number of binoculars manufactured, which is 1,100. what difficulties would this approach cause?

Answer 1

Using the number of binoculars manufactured for flexible overhead budgeting can lead to inaccuracies due to varying labor requirements between the field and professional models, potentially causing resource allocation problems.

Step-by-step explanation:

Using the number of binoculars manufactured as a basis for the flexible overhead budget can cause difficulties, mainly due to the different direct-labor hours required for each model. Field binoculars require eight hours while professional binoculars need ten, which means using a simple count of units produced could lead to imprecise budgeting. Accurate budgeting must account for the variable labor involved in producing each type of binocular.

If the company were to allocate overhead based solely on the number of products manufactured without considering the hours of labor involved, the budget would not accurately reflect the actual costs. This could result in under- or over-allocated resources, inefficient operations, and potentially misguided managerial decisions. It's essential to use a flexible budgeting method that aligns resources accurately with the labor hours required for each product line.