FLEXIBLE BUDGETING Fruta Inc. purchases fruit from numerous growers and packs fruit boxes and fruit baskets for sale. Fruta has developed the following flexible budget for overhead for the coming year. Activity level is measured in direct labor hours.

Activity Level (hours)

2,000 2,500 3,000 Variable costs:

Maintenance $0.80 $ 1,600 $ 2,000 $ 2,400 Supplies 0.20 400 500 600 Power 0.40 800 1,000 1,200 Total variable costs $1.40 $ 2,800 $ 3,500 $ 4,200 Fixed costs:

Depreciation $ 4,800 $ 4,800 $ 4,800 Salaries 18,000 18,000 18,000 Total fixed costs $22,800 $22,800 $22,800 Total overhead costs $25,600 $26,300 $27,000 Required:

. Prepare an overhead budget for May.

. The Cushing High School Parent–Teacher Organization ordered 200 gift baskets from Fruta to be given to high school teachers and support staff as a thank you for a successful school year. These gift baskets must be ready by May 31 and were not included in the original production budget for May. Without preparing a new overhead budget, what is Fruta’s new total budgeted overhead for May?

Problem