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: $\begin{array}{lrlr}\text { Variable }&&\text { Fixed }\
\hline \text { Indirect materials } & \$ 90,000 & \text { Depreciation } & \$ 37,500 \
\text { Indirect labor } & 120,000 & \text { Taxes } & 7,500 \
\text { Factory supplies } & 15,000 & \text { Supervision } & 30,000
\end{array}$ A flexible budget prepared at the 90000 machine hours level of activity would show total manufacturing overhead costs of
A) $202500.
B) $270000.
C) $277500.
D) $225000.

Question

Quizplus · Accepted Answer

The flexible budget at 90,000 machine hours can be calculated by adjusting the variable costs proportionally and keeping the fixed costs constant. Variable costs (Indirect materials + Indirect labor + Factory supplies) at 100,000 machine hours are $225,000. At 90,000 machine hours, they would be 90% of $225,000, which is $202,500. Fixed costs (Depreciation + Taxes + Supervision) total $75,000 and do not change with the level of activity. Therefore, the total manufacturing overhead costs at 90,000 machine hours would be $202,500 (variable) + $75,000 (fixed) = $277,500.

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