Question

Overhead Budget

Johnston Company cleans and applies powder coat paint to metal items on a job-order basis. Johnston has budgeted the following amounts for various overhead categories in the coming year.

Supplies	$212,000
Gas	53,000
Indirect labor	174,000
Supervision	75,000
Depreciation on equipment	48,000
Depreciation on the buliding	45,000
Rental of special equipment	10,000
Electricity (for lighting, heating, and air conditioning)	27,500
Telephone	5,000
Landscaping service	1,600
Other overhead	56,000

In the coming year, Johnston expects to powder coat 200,000 units. Each unit takes 1.4 direct labor hours. Johnston has found that supplies and gas (used to run the drying ovens—all units pass through the drying ovens after powder coat paint is applied) tend to vary with the number of units produced. All other overhead categories are considered to be fixed.

Required:

1. Calculate the number of direct labor hours Johnston must budget for the coming year. Calculate the variable overhead rate. Calculate the total fixed overhead for the coming year. When required, round your answers to the nearest cent and use the rounded answers in subsequent requirements.

Direct labor hours
Variable overhead rate	$	per direct labor hour
Total fixed overhead	$

Feedback

Partially correct

2. Prepare an overhead budget for Johnston for the coming year. Show the total variable overhead, total fixed overhead, and total overhead. When required, round your answers to the nearest cent.

Johnston Company
Overhead Budget
For the Coming Year
Budgeted direct labor hours
Variable overhead rate	$
Budgeted variable overhead	$
Budgeted fixed overhead
Total budgeted overhead	$

Feedback

See Cornerstone 8.5.

Calculate the fixed overhead rate and the total overhead rate. If required, round your answers to the nearest cent.

Fixed overhead rate	$ per direct labor hour
Total overhead rate	$ per direct labor hour

Feedback

See Cornerstone 8.5.

3. What if Johnston had expected to make 198,000 units next year? Assume that the variable overhead per unit does not change and the total fixed overhead amounts do not change. Calculate the new budgeted direct labor hours.

Feedback

Consider the new labor rate and calculate new amounts. Only the direct labor hours change. Prepare a new budget.

Prepare a new overhead budget. If required, round your answers to the nearest cent.

Johnston Company
New Overhead Budget
For the Coming Year
Budgeted direct labor hours
Variable overhead rate	$
Budgeted variable overhead	$
Budgeted fixed overhead
Total budgeted overhead	$

Feedback

Consider the new labor rate and calculate new amounts. Only the direct labor hours change. Prepare a new budget.

Calculate the fixed overhead rate and the total overhead rate. If required, round your answers to the nearest cent.

Fixed overhead rate	$ per direct labor hour
Total overhead rate	$ per direct labor hour

Answer 1

1)Direct labor hours = 1.4*200,000= 280,000 DLH

2)Total variable overhead = supplies + gas

            = 212,000+53,000

            = 265,000

variable overhead rate= Total variable overhead rate /Direct labor hours

       = 265,000/280,000

      = $ 0.95 per DLH

Fixed overhead = 174,000+75,000+48,000+45,000+10,000+27,500+5,000+1,600+56,000

               = 442,100

2)

Budgeted direct labor hours	280,000
variable overhead rate	0.95
Budgeted variable overhead [280,000*0.95]	266,000
Budgeted fixed overhead	442,100
Total budgeted overhead	708,100

Fixed overhead rate = 442,100/280,000= $ 1.58 per DLH

Total overhead rate= 708,100/280,000= $ 2.53 per DLH

3)New budgeted Direct labor hours = new units *hours per unit

                  = 198,000*1.4

                   = 277,200 DLH

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