Flexible budget; overhead variance analysis LO₂ 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.

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 I 10%. Also determine the rate for application of factory overhead to work in process at each level of volume.
2. Prepare a flexible budget for production levels of 80, 90, and I 1 0%, 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 and it has a ten-year life.
3. Using the flexible budget prepared in (I), determine the budgeted cost at 96% of capacity, using interpolation.
4. Using the flexible budget prepared in (I), determine the budgeted cost at 104% of capacity using a method other than interpolation.

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Factory Overhead Cost Budget Fixed cost: Taxes on building and machinery.. Superintendent's salary Supervisors' salaries Maintenance wages. Variable cost: Repairs ..... Maintenance supplies.. Other supplies. Payroll taxes Depreciation on building and machinery.... ... $1,200 500 Insurance on building and machinery. 500 1,500 2,300 1,000 $7,000 $ 400 300 200 800 300 2,000 $9,000 Small tools.. Total standard factory overhead.. Production and Cost Data Number of units produced... Factory overhead: Depreciation on building and machinery. Supervisors' salaries Insurance on building and machinery. 4,000 $1,200 2,300 480 Maintenance supplies.. Maintenance wages.. Other supplies. Payroll taxes 200 1,050 150 650 Repairs. 275 Small tools. 170 Superintendent's salary 1,500 Taxes on building and machinery.. 525