Flexible Budget for Various Production Levels

Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDiet is a standard mixture for healthy dogs. SpecialDiet 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 80,000 bags of each product during the coming year. BasicDiet requires 0.20 direct labor hour per bag, and SpecialDiet requires 0.30 direct labor hour per bag. Ladan has developed the following fixed and variable costs for each of the four overhead items:

Overhead Item	Fixed Cost	Variable Rate per Direct Labor Hour
Maintenance	$ 57,250	$0.50
Power		0.40
Indirect labor	43,500	2.10
Rent	39,000

Required:

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1. Calculate the direct labor hours required for production that is 10% higher than expected.

fill in the blank 64073e05105703c_1 hours

Calculate the direct labor hours required for production that is 20% lower than expected.

fill in the blank 64073e05105703c_2 hours

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The first step is to calculate expected hours:

(Number of units Product 1 x Direct labor hours Product 1) + (Number of units Product 2 x Direct labor hours Product 2)

Then calculate hours that are 10% higher and 20% lower than expected.

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2. Prepare an overhead budget that reflects production that is 10% higher than expected. (Hint: Use total direct labor hours calculated in Requirement 1.)

Healthy Pet Company Overhead Budget For the Coming Year

	Rates per Hour	Hours (10% higher than expected)
Variable costs:
Maintenance	$fill in the blank 64cc2efa0031044_1	$fill in the blank 64cc2efa0031044_2
Power	fill in the blank 64cc2efa0031044_3	fill in the blank 64cc2efa0031044_4
Indirect labor	fill in the blank 64cc2efa0031044_5	fill in the blank 64cc2efa0031044_6
Total variable cost			$fill in the blank 64cc2efa0031044_7
Fixed costs:
Maintenance		$fill in the blank 64cc2efa0031044_8
Indirect labor		fill in the blank 64cc2efa0031044_9
Rent		fill in the blank 64cc2efa0031044_10
Total fixed costs			fill in the blank 64cc2efa0031044_11
Total overhead costs			$fill in the blank 64cc2efa0031044_12

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Enter the Variable Rates per Direct Labor Hour in the first column.

Multiply the rate by the hours calculated in Requirement 1 for 10% more hours than expected. Fixed costs are given and are not based on hours.

Review the "How to Prepare a Before-the-Fact Flexible Budget" example in the text.

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Prepare an overhead budget that reflects production that is 20% lower than expected. (Hint: Use total direct labor hours calculated in Requirement 1.)

Healthy Pet Company Overhead Budget For the Coming Year

	Rates per Hour	Hours (20% fewer than expected)
Variable costs:
Maintenance	$fill in the blank 5ee2bffe806d057_1	$fill in the blank 5ee2bffe806d057_2
Power	fill in the blank 5ee2bffe806d057_3	fill in the blank 5ee2bffe806d057_4
Indirect labor	fill in the blank 5ee2bffe806d057_5	fill in the blank 5ee2bffe806d057_6
Total variable cost			$fill in the blank 5ee2bffe806d057_7
Fixed costs:
Maintenance		$fill in the blank 5ee2bffe806d057_8
Indirect labor		fill in the blank 5ee2bffe806d057_9
Rent		fill in the blank 5ee2bffe806d057_10
Total fixed costs			fill in the blank 5ee2bffe806d057_11
Total overhead costs			$fill in the blank 5ee2bffe806d057_12