A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of
A) $270,000.
B) $360,000.
C) $370,000.
D) $300,000.

Question

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:  A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of
A) $270,000. 
B) $360,000. 
C) $370,000. 
D) $300,000.

Quizplus · Accepted Answer

To prepare a flexible budget at 90,000 machine hours level of activity, we need to adjust the budgeted manufacturing overhead costs given for 100,000 machine hours level based on the changes in variable costs.

Variable costs per machine hour = Total variable costs / Total machine hours
= ($240,000 + $110,000) / 100,000 
= $3.50 per machine hour

At 90,000 machine hours, the total variable costs would be $3.50 per machine hour * 90,000 machine hours = $315,000.

Therefore, the total manufacturing overhead costs at 90,000 machine hours level of activity would be:
Fixed costs + Variable costs at 90,000 machine hours
= $145,000 + $315,000
= $460,000

Hence, the answer is C) $370,000.

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