Classics, SA., uses a flexible budget for overhead costs. The company expects to produce 20,000 units of the product it manufactures. Half of the units require 0.50 direct labour hours per unit. The remainder requires 0.75 direct labour hours per unit. The cost formulas for each of the four overhead items 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 10 percent higher than expected.

Question

Classics, SA., uses a flexible budget for overhead costs. The company expects to produce 20,000 units of the product it manufactures. Half of the units require 0.50 direct labour hours per unit. The remainder requires 0.75 direct labour hours per unit. The cost formulas for each of the four overhead items 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 10 percent higher than expected.

Quizplus · Accepted Answer

The Answer of Classics, SA., uses a flexible budget for overhead costs. The company expects to produce 20,000 units of the product it manufactures. Half of the units require 0.50 direct labour hours per unit. The remainder requires 0.75 direct labour hours per unit. The cost formulas for each of the four overhead items 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 10 percent higher than expected.