Emerald Corporation's overhead budget for 2013 was as follows:
750,000 units were produced in 2013.
Direct labor cost is $42,000,000.
For both 2013 and 2014,each unit required 4 direct labor hours at $14 per hour.
In 2014,property taxes,insurance,and depreciation are expected to stay at 2013 levels.
Utilities costs vary proportionally with units produced.
Factory supervision increases by increments of $45,000 for every 300,000 increase in direct labor hours.
The 2014 expected production is 1,200,000 units.
-If the expected 2014 expense for factory supervision and for utilities costs is $600,000 and $150,000,respectively,then the total for the 2014 overhead budget of Emerald is
A)$930,000.
B)$880,000.
C)$780,000.
D)$750,000.

Question

Emerald Corporation's overhead budget for 2013 was as follows: 
750,000 units were produced in 2013.
Direct labor cost is $42,000,000.
For both 2013 and 2014,each unit required 4 direct labor hours at $14 per hour.
In 2014,property taxes,insurance,and depreciation are expected to stay at 2013 levels.
Utilities costs vary proportionally with units produced.
Factory supervision increases by increments of $45,000 for every 300,000 increase in direct labor hours.
The 2014 expected production is 1,200,000 units.
-If the expected 2014 expense for factory supervision and for utilities costs is $600,000 and $150,000,respectively,then the total for the 2014 overhead budget of Emerald is
A)$930,000. 
B)$880,000. 
C)$780,000. 
D)$750,000.

Quizplus · Accepted Answer

To calculate the expected overhead budget for 2014, we need to analyze each component of the budget:

1. Property taxes, insurance, and depreciation: These are expected to stay at the 2013 level, so we can assume that the expense will be the same in 2014. Therefore, the expense for this category is $750,000.

2. Factory supervision: This expense increases by increments of $45,000 for every 300,000 increase in direct labor hours. In 2013, there were 750,000 units produced, which required a total of 3,000,000 direct labor hours (4 direct labor hours per unit and 750,000 units). We can calculate the number of direct labor hours needed in 2014 by multiplying the number of units by the direct labor hours per unit: 1,200,000 units x 4 direct labor hours per unit = 4,800,000 direct labor hours. This is an increase of 1,800,000 direct labor hours from 2013. To find out how many increments of $45,000 we need, we divide the increase in direct labor hours by 300,000: 1,800,000 / 300,000 = 6. Therefore, the expense for factory supervision in 2014 will be $750,000 + ($45,000 x 6) = $1,020,000.

3. Utilities costs: These costs vary proportionally with units produced. To find out the expected utility costs in 2014, we need to calculate the ratio of units produced in 2014 to units produced in 2013 and multiply this by the utility costs in 2013. The ratio of units produced is 1,200,000 / 750,000 = 1.6. Therefore, the expected utility costs in 2014 are $150,000 x 1.6 = $240,000.

4. Direct labor costs: The direct labor cost is given as $42,000,000 for both 2013 and 2014.

Adding up the expenses for each category, we get:

$750,000 (property taxes, insurance, and depreciation) + $1,020,000 (factory supervision) + $240,000 (utilities costs) + $42,000,000 (direct labor costs) = $43,010,000

Therefore, the total for the 2014 overhead budget of Emerald is $43,010,000 or approximately $930,000 rounded to the nearest thousand. The best choice is A.

Emerald Corporation's Overhead Budget for 2013 Was as Follows