BirdCo.'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: $\begin{array}{lr}
\text { Indirect labour } & \$ 45,000 \
\text { Factory supplies } & 4,000 \
\text { Indirect materials } & 21,000 \
\text { Amortization on factory building (straight line) } & \underline {15,000}\
\text { Total manufacturing overhead } &\underline { \$85,000}
\end{array}$ If BirdCo. operates at 21,000 machine hours, how much is allowed on a flexible budget for manufacturing overhead costs?

Question

Quizplus · Accepted Answer

The first step is to find the variable overhead rate:

Variable overhead rate = (Total manufacturing overhead costs - Fixed manufacturing overhead costs) / Planned activity level
Variable overhead rate = ($85,000 - $15,000) / 20,000 machine hours = $3 per machine hour

Next, we can use the variable overhead rate to calculate the flexible budget amount at 21,000 machine hours:

Flexible budget manufacturing overhead cost = Fixed manufacturing overhead cost + (Variable overhead rate x Actual activity level)
Flexible budget manufacturing overhead cost = $85,000 + ($3 x 21,000) = $88,500

Therefore, the allowed amount on a flexible budget for manufacturing overhead costs at 21,000 machine hours is $88,500. The correct answer is D.

BirdCo's Master Budget Shows That the Planned Activity Level for Next