Ceiling Fans by Ike's overhead budget for 2009 was as follows: $\begin{array}{lr}
\text { Factory supervision } & \$ 300,000 \
\text { Utilities costs } & 150,000 \
\text { Insurance } & 28,000 \
\text { Property taxes } & 22,000 \
\text { Depreciation } & \underline{100,000} \
\text { Total }&\underline{ \$ 600,000}
\end{array}$ 600,000 units were produced in 2009.
Direct labor cost is $18,000,000.
For both 2009 and 2010,each unit required 3 direct labor hours at $10 per hour.
In 2010,property taxes,insurance,and depreciation are expected to stay at 2009 levels.
Utilities costs vary proportionally with units produced.
Factory supervision increases by increments of $30,000 for every 200,000 increase in direct labor hours.
The 2010 expected production is 1,200,000 units.
What will be the value for factory supervision in the 2010 overhead budget?

Question

Quizplus · Accepted Answer

In 2009, 600,000 units required 1,800,000 direct labor hours (600,000 units * 3 hours/unit). In 2010, 1,200,000 units will require 3,600,000 direct labor hours (1,200,000 units * 3 hours/unit). The increase in direct labor hours is 1,800,000 (3,600,000 - 1,800,000). For every 200,000 increase in direct labor hours, factory supervision increases by $30,000. Therefore, the increase in factory supervision is $270,000 (1,800,000 / 200,000 * $30,000). The total factory supervision cost for 2010 is $570,000 ($300,000 + $270,000).

Ceiling Fans by Ike's Overhead Budget for 2009 Was as Follows