Timothy, SA., uses a flexible budget for overhead costs. The company expects to produce 40,000 units of the product it manufactures. Each unit requires 0.40 direct labour hours. The cost formulas for each of the four overhead items (where X is measured in direct labour hours) is as follows:
Required:

a.
Prepare an overhead budget for the expected activity level for the coming year.
b.
Prepare an overhead budget that reflects production that is 25 percent lower than expected.

Question

Timothy, SA., uses a flexible budget for overhead costs. The company expects to produce 40,000 units of the product it manufactures. Each unit requires 0.40 direct labour hours. The cost formulas for each of the four overhead items (where X is measured in direct labour hours) is as follows:
Required:
  
a.
Prepare an overhead budget for the expected activity level for the coming year.
b.
Prepare an overhead budget that reflects production that is 25 percent lower than expected.

Quizplus · Accepted Answer

The Answer of Timothy, SA., uses a flexible budget for overhead costs. The company expects to produce 40,000 units of the product it manufactures. Each unit requires 0.40 direct labour hours. The cost formulas for each of the four overhead items (where X is measured in direct labour hours) is as follows:
Required:
  
a.
Prepare an overhead budget for the expected activity level for the coming year.
b.
Prepare an overhead budget that reflects production that is 25 percent lower than expected.