Regina Johnson, controller for Pet-Care Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food.

One, BasicDiet, is a standard mixture for healthy dogs. The second, SpecDiet, is a reduced protein formulation for older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 100,000 fifty-pound bags of each product during the coming year. BasicDiet requires 0.25 direct labor hour per bag and SpecDiet requires 0.30. Regina has developed the following fixed and variable costs for each of the four overhead items:

Overhead Item Fixed Cost Variable Rate per DLH Maintenance $17,000 $0.40 Power 0.50 Indirect labor 26,500 1.60 Rent 18,000 Required:

1. Prepare an overhead budget for the expected activity level for the coming year.

2. Prepare an overhead budget that reflects production that is 10 percent higher than expected (for both products) and one for production that is 20 percent lower than expected. lp6