Question

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 300,000 units of the standard model and 120,000 units of the deluxe model during the coming year. The standard model requires 0.05 direct labor hour per unit, and the deluxe model requires 0.08. The controller has developed the following cost formulas for each of the four overhead items:

Cost Formula:

Maintenance $34,500+ $1.25 DLH

Power $0.50 DLH

Indirect labor $68,400+$2.30 DLH

Rent $31,500

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

2. Prepare an overhead budget that reflects production that is 10 percent higher than expected (for both products) and a budget for production that is 20 percent lower than expected.

Notes:

Can you please show me step-by-step (all calculations necessary) as to how to arrive at the correct answer?

Please provide your answer on spreadsheet as it is diffcult to read handwriting.

Answer 1

SOLUTION

1. Working-

	Standard model	Deluxe model	Total
Production (units)	300,000	120,000
DLH per unit	0.05	0.08
Total DLH	15,000	9,600	24,600

Overhead budget-

DLH = 24,600

Particulars	Per DLH	Amount ($)	Amount ($)
Variable costs:
Maintenance	1.25	30,750
Power	0.5	12,300
Indirect labor	2.3	56,580
Total variable costs			99,630
Fixed costs:
Maintenance		34,500
Indirect labor		68,400
Rent		31,500
Total fixed costs			134,400
Total overhead costs			234,030

2. Working-

	Standard model	Deluxe model	Total
Production (units) (300,000*110%) , (120,000*110%)	330,000	132,000
DLH per unit	0.05	0.08
Total DLH	16,500	10,560	27,060

Overhead budget-

DLH = 27,060

Particulars	Per DLH	Amount ($)	Amount ($)
Variable costs:
Maintenance	1.25	33,825
Power	0.5	13,530
Indirect labor	2.3	62,238
Total variable costs			109,593
Fixed costs:
Maintenance		34,500
Indirect labor		68,400
Rent		31,500
Total fixed costs			134,400
Total overhead costs			243,993

3. Working-

	Standard model	Deluxe model	Total
Production (units) (300,000*80%) , (120,000*80%)	240,000	96,000
DLH per unit	0.05	0.08
Total DLH	12,000	7,680	19,680

Overhead budget-

DLH = 19,680

Particulars	Per DLH	Amount ($)	Amount ($)
Variable costs:
Maintenance	1.25	24,600
Power	0.5	9,840
Indirect labor	2.3	45,264
Total variable costs			79,704
Fixed costs:
Maintenance		34,500
Indirect labor		68,400
Rent		31,500
Total fixed costs			134,400
Total overhead costs			214,104