Haroot Company's master budget shows that the planned activity level for next year is expected to be 20,000 machine hours.At this level of activity, the following manufacturing overhead costs are expected: If the company operates at 21,000 machine hours, how much is allowed on a flexible budget for manufacturing overhead costs?

Question

Haroot Company's master budget shows that the planned activity level for next year is expected to be 20,000 machine hours.At this level of activity, the following manufacturing overhead costs are expected:  If the company operates at 21,000 machine hours, how much is allowed on a flexible budget for manufacturing overhead costs?

Quizplus · Accepted Answer

To calculate the manufacturing overhead cost at 21,000 machine hours, we need to use a flexible budget formula:

Flexible budget manufacturing overhead = Budgeted manufacturing overhead at planned activity level + (Variable manufacturing overhead cost per machine hour x Change in machine hours)

Plugging in the given information:

Budgeted manufacturing overhead at planned activity level = $87,500
Variable manufacturing overhead cost per machine hour = ($36,000 - $25,500) / 20,000 = $0.575 per machine hour
Change in machine hours = 21,000 - 20,000 = 1,000 machine hours

Flexible budget manufacturing overhead = $87,500 + ($0.575 x 1,000) = $88,500

Therefore, the answer is C) $88,500.

Haroot Company's Master Budget Shows That the Planned Activity Level