Peterson Company gathered the following flexible budget information:
$$\begin{array} { | l | l | l | }
\hline \text { Percent of normal capacity } & 90 \% & 100 \% \
\hline \text { Standard direct labor hours } & 27,000 & 30,000 \
\hline \text { Total budgeted variable overhead } & \$ 54,000 & \$ 60,000 \
\hline \text { Total budgeted fixed overhead } & \$ 90,000 & \$ 90,000 \
\hline
\end{array}$$ How much is the total budgeted overhead at 95% of normal capacity?

Question

Peterson Company gathered the following flexible budget information:
$$\begin{array} { | l | l | l | } 
\hline \text { Percent of normal capacity } & 90 \% & 100 \% \
\hline \text { Standard direct labor hours } & 27,000 & 30,000 \
\hline \text { Total budgeted variable overhead } & \$ 54,000 & \$ 60,000 \
\hline \text { Total budgeted fixed overhead } & \$ 90,000 & \$ 90,000 \
\hline
\end{array}$$ How much is the total budgeted overhead at 95% of normal capacity?

Quizplus · Accepted Answer

The total budgeted overhead at 95% capacity includes both variable and fixed overhead. Variable overhead can be calculated on a per unit (or per hour) basis and then adjusted for the 95% capacity level. Fixed overhead remains constant regardless of the capacity level.1. Calculate variable overhead rate per standard direct labor hour at 100% capacity: $60,000 / 30,000 hours = $2 per hour.2. Calculate variable overhead at 95% capacity: 95% of 30,000 hours = 28,500 hours. Then, 28,500 hours * $2 per hour = $57,000.3. Add fixed overhead, which is constant at $90,000, to the variable overhead at 95% capacity: $57,000 + $90,000 = $147,000.

Peterson Company Gathered the Following Flexible Budget Information How Much Is the Total Budgeted Overhead at 95% of |