Question

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 300,000 units of the standard model and 130,000 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	$68,200 + $2.30 DLH
Rent	$31,700

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			$

Answer 1

Overhead Budget					Overhead Budget
For the Year Ended December 31					For the Year Ended December 31
	Per DLH					Per DLH
Budgeted direct labor hours	50800	DLH			Budgeted direct labor hours	40640	DLH
Variable costs:					Variable costs:
Maintenance	$1.25	$63,500			Maintenance	$1.25	$50,800
Power	0.5	25400			Power	0.5	20320
Indirect labor	2.3	116840			Indirect labor	2.3	93472
Total variable costs			$205,740		Total variable costs			$164,592
Fixed costs:					Fixed costs:
Maintenance		34300			Maintenance		34300
Indirect labor		68200			Indirect labor		68200
Rent		31700			Rent		31700
Total fixed costs			$134,200		Total fixed costs			$134,200
Total overhead costs			$339,940		Total overhead costs			$298,792
Overhead Budget
For the Year Ended December 31
	Per DLH
Budgeted direct labor hours	55880	DLH
Variable costs:
Maintenance	$1.25	$69,850
Power	0.5	27940
Indirect labor	2.3	128524
Total variable costs			$226,314
Fixed costs:
Maintenance		34300
Indirect labor		68200
Rent		31700
Total fixed costs			$134,200
Total overhead costs			$360,514