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A company’s planned activity level for next year is expected to be 50,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:

Variable Fixed

Indirect materials $90,000 Depreciation $37,500

Indirect labor 120,000 Taxes 7,500

Factory supplies 15,000 Supervision 30,000

A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of

$405,000

$480,000

$477,500

$425,000

User Dmrz
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1 Answer

3 votes

Answer:

The correct answer is $300,000.

Step-by-step explanation:

To prepare a flexible budget, we need to separate the manufacturing overhead costs into their variable and fixed components.

Variable manufacturing overhead costs are those that vary with the level of activity (machine hours), while fixed manufacturing overhead costs remain constant regardless of the activity level.

Given:

Planned activity level (machine hours) = 50,000

Variable manufacturing overhead costs:

Indirect materials = $90,000

Indirect labor = $120,000

Factory supplies = $15,000

Fixed manufacturing overhead costs:

Depreciation = $37,500

Taxes = $7,500

Supervision = $30,000

To calculate the flexible budget at the 50,000 machine hours level of activity, we use the formula:

Flexible Budget = Fixed Manufacturing Overhead Costs + (Variable Manufacturing Overhead Rate per Machine Hour * Actual Machine Hours)

Calculate the Variable Manufacturing Overhead Rate per Machine Hour:

Variable Manufacturing Overhead Rate per Machine Hour =

(Variable Manufacturing Overhead Costs) / (Planned activity level in machine hours)

Variable Manufacturing Overhead Rate per Machine Hour =

($90,000 + $120,000 + $15,000) / 50,000

Variable Manufacturing Overhead Rate per Machine Hour = $225,000 / 50,000

Variable Manufacturing Overhead Rate per Machine Hour = $4.50 per machine hour

Calculate the Flexible Budget at 50,000 machine hours:

Flexible Budget = ($37,500 + $7,500 + $30,000) + ($4.50 * 50,000)

Flexible Budget = $75,000 + $225,000

Flexible Budget = $300,000

Therefore, the flexible budget at the 50,000 machine hours level of activity would show total manufacturing overhead costs of $300,000.

The correct answer is $300,000.

User Rasoul
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