Predetermined Oil rales: flexible luulg >a< Lightening Company bud¬ geted the following factory overhead costs for the upcoming year to help calculate variable and fixed predetermined overhead rates.

Indirect material: $1.25 per unit produced Indirect labor: $1.00 per unit produced Factory utilities: $3,000 plus $0.02 per unit produced Factory machine maintenance: $10,000 plus $0.17 per unit produced Material handling charges: $8,000 plus $0.06 per unit produced Machine depreciation: $0.03 per unit produced Building rent: $25,000 Supervisors' salaries: $72,000 Factory insurance: $6,000 The company produces only one type of product that has a theoretical ca¬ pacity of 100,000 units of production during the year. Practical capacity is 80 percent of theoretical, and normal capacity is 95 percent of practical. The company’s expected production for the upcoming year is 72,000 units.

a. Prepare a flexible budget for Lightening Company using each level of capacity.

b. Calculate the predetermined variable and fixed overhead rates for each capacity measure (round to the nearest cent when necessary).

C. Lightening Company decides to apply overhead to products using ex¬ pected capacity as the budgeted level of activity. The firm actually pro¬ duces 70,000 units during the year. All actual costs are as budgeted.

1. Prepare journal entries to record the incurrence of actual overhead costs and to apply overhead to production. Assume cash is paid for costs when appropriate.

2. What is the amount of underapplied or overapplied fixed overhead at year-end?

d. Which measure of capacity would be of most benefit to management and why?

LO1.