Flexible budget for factory overhead} Presented below are the monthly factory overhead cost budget (at normal capacity

Question:

Flexible budget for factory overhead}
Presented below are the monthly factory overhead cost budget (at normal capacity of 5,000 units or 20,000 direct labor hours) and the production and cost data for a month. image text in transcribed

{Required:}
1. Assuming that variable costs will vary in direct proportion to the change in volume, prepare a flexible budget for production levels of $80 \%, 90 \%$, and $110 \%$ of normal capacity. Also determine the rate for application of factory overhead to work in process at each level of volume in both units and direct labor hours.
2. Prepare a flexible budget for production levels of $80 \%, 90 \%$, and $110 \%$, assuming that variable costs will vary in direct proportion to the change in volume, but with the following exceptions. (Hint: Set up a third category for semifixed expenses.)

a. At $110 \%$ of capacity, an assistant department head will be needed at a salary of $\$ 10,500$ annually.

b. At $80 \%$ of capacity, the repairs expense will drop to one-half of the amount at $100 \%$ capacity.

c. Maintenance supplies expense will remain constant at all levels of production.

d. At $80 \%$ of capacity, one part-time maintenance worker, earning $\$ 6,000$ a year, will be laid off.

e. At $110 \%$ of capacity, a machine not normally in use and on which no depreciation is normally recorded will be used in production. Its cost was $\$ 12,000$, it has a ten-year life, and straight-line depreciation will be taken.
3. Using the facts and the flexible budget prepared in 1., determine the budgeted cost at $96 \%$ of capacity, using interpolation.
4. Using the flexible budget prepared in 1., determine the budgeted cost at $104 \%$ of capacity, using a method other than interpolation.

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