A company's planned activity level for next year is expected to be 100000 machine hours. At this level of activity the company budgeted the following manufacturing overhead costs: $\begin{array}{lrlr}\text { Variable }&&\text { Fixed }\
\hline \text { Indirect materials } & \$ 140,000 & \text { Depreciation } & \$ 60,000 \
\text { Indirect labor } & 200,000 & \text { Taxes } & 10,000 \
\text { Factory supplies } & 20,000 & \text { Supervision } & 50,000
\end{array}$ A flexible budget prepared at the 80000 machine hours level of activity would show total manufacturing overhead costs of
A) $288000.
B) $360000.
C) $384000.
D) $408000.

Question

Quizplus · Accepted Answer

The flexible budget at 80,000 machine hours would include both variable and fixed costs. Variable costs change with the level of activity, so they would be adjusted to 80% of their original budget (since 80,000 is 80% of 100,000 hours). Fixed costs remain the same regardless of the level of activity. Therefore, the calculation is as follows:- Variable costs at 100,000 hours: $140,000 (Indirect materials) + $200,000 (Indirect labor) + $20,000 (Factory supplies) = $360,000.- Variable costs at 80,000 hours (80% of original): $360,000 * 0.8 = $288,000.- Fixed costs (unchanged): $60,000 (Depreciation) + $10,000 (Taxes) + $50,000 (Supervision) = $120,000.- Total costs at 80,000 hours: $288,000 (Variable) + $120,000 (Fixed) = $408,000.

A Company's Planned Activity Level for Next Year Is Expected