Question

Antuan Company set the following standard costs for one unit of its product.

Direct materials (6 Ibs. @ $5 per Ib.)	$	30
Direct labor (2 hrs. @ $17 per hr.)		34
Overhead (2 hrs. @ $18.50 per hr.)		37
Total standard cost	$	101

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials	$	45,000
Indirect labor		180,000
Power		45,000
Repairs and maintenance		90,000
Total variable overhead costs				$	360,000
Fixed overhead costs
Depreciation—Building		24,000
Depreciation—Machinery		80,000
Taxes and insurance		12,000
Supervision		79,000
Total fixed overhead costs					195,000
Total overhead costs				$	555,000

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (91,000 Ibs. @ $5.10 per lb.)				$	464,100
Direct labor (30,500 hrs. @ $17.25 per hr.)					526,125
Overhead costs
Indirect materials	$	44,250
Indirect labor		177,750
Power		43,000
Repairs and maintenance		96,000
Depreciation—Building		24,000
Depreciation—Machinery		75,000
Taxes and insurance		11,500
Supervision		89,000			560,500
Total costs				$	1,550,725
1&2. Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.

Answer 1

ANTUAN COMPANY
FLEXIBLE OVERHEAD BUDGETS
FOR MONTH ENDED OCTOBER 31
	FLEXIBLE BUDGET		FLEXIBLE BUDGET FOR
PARTICULARS	VARIABLE COST PER UNIT	TOTAL FIXED COST	65% OF CAPACITY	75% OF CAPACITY	85% OF CAPACITY
SALES (IN UNITS)			$             13,000.00	$           15,000.00	$             17,000.00
VARIABLE COSTS :
INDIRECT MATERIALS	$                                        3.00		$             39,000.00	$           45,000.00	$             51,000.00
INDIRECT LABOUR	$                                      12.00		$           156,000.00	$         180,000.00	$           204,000.00
POWER	$                                        3.00		$             39,000.00	$           45,000.00	$             51,000.00
REPAIRS AND MAINTENANCE	$                                        6.00		$             78,000.00	$           90,000.00	$           102,000.00
TOTAL VARIABLE COSTS	$                                      24.00		$           312,000.00	$         360,000.00	$           408,000.00
FIXED COSTS :
DEPRECIATION -BUILDING			$             24,000.00	$           24,000.00	$             24,000.00
DEPRECIATION- MACHINERY			$             80,000.00	$           80,000.00	$             80,000.00
TAXES AND INSURANCE			$             12,000.00	$           12,000.00	$             12,000.00
SUPERVISION			$             79,000.00	$           79,000.00	$             79,000.00
TOTAL FIXED COSTS			$           195,000.00	$         195,000.00	$           195,000.00
TOTAL OVERHEAD COSTS			$           507,000.00	$         555,000.00	$           603,000.00