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Flexible Budget In an attempt to improve budgeting, the controller for Meliore, Inc., has developed a...

Flexible Budget

In an attempt to improve budgeting, the controller for Meliore, Inc., has developed a flexible budget for overhead costs. Meliore, Inc., makes two types of products, the standard model and the deluxe model. Meliore expects to produce 400,000 units of the standard model and 140,000 units of the deluxe model during the coming year. The standard model requires 0.10 direct labor hour per unit, and the deluxe model requires 0.16. The controller has developed the following cost formulas for each of the four overhead items:

Cost Formula          
Maintenance $34,300 + $1.25 DLH
Power $0.50 DLH
Indirect labor $68,500 + $2.30 DLH
Rent $31,100

Required:

1. Prepare an overhead budget for the expected activity level for the coming year.

Meliore, Inc.
Overhead Budget
For the Year Ended December 31
Per DLH
Budgeted direct labor hours DLH
Variable costs:
Maintenance $ $
Power
Indirect labor
Total variable costs $
Fixed costs:
Maintenance $
Indirect labor
Rent
Total fixed costs
Total overhead costs $

2. Prepare an overhead budget that reflects production that is 10 percent higher than expected (for both products).

Meliore, Inc.
Overhead Budget
For the Year Ended December 31
Per DLH
Budgeted direct labor hours DLH
Variable costs:
Maintenance $ $
Power
Indirect labor
Total variable costs $
Fixed costs:
Maintenance $
Indirect labor
Rent
Total fixed costs
Total overhead costs $

Prepare an overhead budget for production that is 20 percent lower than expected.

Meliore, Inc.
Overhead Budget
For the Year Ended December 31
Per DLH
Budgeted direct labor hours DLH
Variable costs:
Maintenance $ $
Power
Indirect labor
Total variable costs $
Fixed costs:
Maintenance $
Indirect labor
Rent
Total fixed costs
Total overhead costs $

Solutions

Expert Solution

1 Overhead budget for the expected activity level for year Ended Dec. 31 for estimated Production
Particulars Standard model Delux Model Total
No. of units 400000 140000
Budgeted direct labor hours @ .10 hr for Standard & 0.16 hr per Delux 40000 22400
Variable costs:
Maintenance @ 1.25 Direct Labour Hour (DLH) $50,000.00 $28,000.00 $78,000.00
Power @ 0.5 Direct Labour Hour (DLH) $20,000.00 $11,200.00 $31,200.00
Indirect labor @ 2.3 Direct Labour Hour (DLH) $92,000.00 $51,520.00 $1,43,520.00
Total variable costs $1,62,000.00 $90,720.00 $2,52,720.00
Fixed costs: A $0.00
Maintenance $34,300.00
Indirect labor $68,500.00
Rent $31,000.00
Total fixed costs B $0.00 $0.00 $1,33,800.00
Total overhead costs A + B $1,62,000.00 $90,720.00 $3,86,520.00
2 Overhead budget for the expected activity level for year Ended Dec. 31 for 10 percent Higher than estimated Production
Particulars Standard model Delux Model Total
No. of units * 110% 440000 154000
Budgeted direct labor hours @ .10 hr for Standard & 0.16 hr per Delux 44000 24640
Variable costs:
Maintenance @ 1.25 Direct Labour Hour (DLH) $55,000.00 $30,800.00 $85,800.00
Power @ 0.5 Direct Labour Hour (DLH) $22,000.00 $12,320.00 $34,320.00
Indirect labor @ 2.3 Direct Labour Hour (DLH) $1,01,200.00 $56,672.00 $1,57,872.00
Total variable costs $1,78,200.00 $99,792.00 $2,77,992.00
Fixed costs: A $0.00
Maintenance $34,300.00
Indirect labor $68,500.00
Rent $31,000.00
Total fixed costs B $0.00 $0.00 $1,33,800.00
Total overhead costs A + B $1,78,200.00 $99,792.00 $4,11,792.00
Overhead budget for the expected activity level for year Ended Dec. 31 for 20 percent Lower than estimated Production
Particulars Standard model Delux Model Total
No. of units * 80% 320000 112000
Budgeted direct labor hours @ .10 hr for Standard & 0.16 hr per Delux 32000 17920
Variable costs:
Maintenance @ 1.25 Direct Labour Hour (DLH) $40,000.00 $22,400.00 $62,400.00
Power @ 0.5 Direct Labour Hour (DLH) $16,000.00 $8,960.00 $24,960.00
Indirect labor @ 2.3 Direct Labour Hour (DLH) $73,600.00 $41,216.00 $1,14,816.00
Total variable costs A $1,29,600.00 $72,576.00 $2,02,176.00
Fixed costs:
Maintenance $34,300.00
Indirect labor $68,500.00
Rent $31,000.00
Total fixed costs B $0.00 $0.00 $1,33,800.00
Total overhead costs A + B $1,29,600.00 $72,576.00 $3,35,976.00

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