Flexible Budget

In an attempt to improve budgeting, the controller for Engersol, Inc., has developed a flexible budget for overhead costs. Engersol, Inc., makes two types of products, commercial floor cleaners and household floor cleaners. The company expects to produce 300,000 units of the commercial cleaner and 120,000 units of the household cleaner during the coming year. The commercial cleaner requires 0.10 direct labor hour per unit, and the household cleaner requires 0.16. The controller has developed the following cost formulas for each of the four overhead items:

	Cost Formula
Maintenance	$34,300 + $1.25 DLH
Power	$0.50 DLH
Indirect labor	$68,500 + $2.30 DLH
Rent	$31,700

Required:

Question Content Area

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

Engersol, Inc. Overhead Budget For the Year Ended December 31

	Per DLH		blank
Budgeted direct labor hours	blank	fill in the blank e02818024fe7037_1	blank
Variable costs:
Maintenance	$fill in the blank e02818024fe7037_2	$fill in the blank e02818024fe7037_3
Power	fill in the blank e02818024fe7037_4	fill in the blank e02818024fe7037_5
Indirect labor	fill in the blank e02818024fe7037_6	fill in the blank e02818024fe7037_7
Total variable costs			$fill in the blank e02818024fe7037_8
Fixed costs:
Maintenance		$fill in the blank e02818024fe7037_9
Indirect labor		fill in the blank e02818024fe7037_10
Rent		fill in the blank e02818024fe7037_11
Total fixed costs			fill in the blank e02818024fe7037_12
Total overhead costs			$fill in the blank e02818024fe7037_13

Question Content Area

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

Engersol, Inc. Overhead Budget For the Year Ended December 31

	Per DLH	blank	blank
Budgeted direct labor hours	blank	fill in the blank 03d9f904105bff9_1	blank
Variable costs:
Maintenance	$fill in the blank 03d9f904105bff9_2	$fill in the blank 03d9f904105bff9_3
Power	fill in the blank 03d9f904105bff9_4	fill in the blank 03d9f904105bff9_5
Indirect labor	fill in the blank 03d9f904105bff9_6	fill in the blank 03d9f904105bff9_7
Total variable costs			$fill in the blank 03d9f904105bff9_8
Fixed costs:
Maintenance		$fill in the blank 03d9f904105bff9_9
Indirect labor		fill in the blank 03d9f904105bff9_10
Rent		fill in the blank 03d9f904105bff9_11
Total fixed costs			fill in the blank 03d9f904105bff9_12
Total overhead costs			$fill in the blank 03d9f904105bff9_13

Question Content Area

Prepare an overhead budget for production that is 20 percent lower than expected.

Engersol, Inc. Overhead Budget For the Year Ended December 31

	Per DLH	blank	blank
Budgeted direct labor hours	blank	fill in the blank 820b0d07801df89_1	blank
Variable costs:
Maintenance	$fill in the blank 820b0d07801df89_2	$fill in the blank 820b0d07801df89_3
Power	fill in the blank 820b0d07801df89_4	fill in the blank 820b0d07801df89_5
Indirect labor	fill in the blank 820b0d07801df89_6	fill in the blank 820b0d07801df89_7
Total variable costs			$fill in the blank 820b0d07801df89_8
Fixed costs:
Maintenance		$fill in the blank 820b0d07801df89_9
Indirect labor		fill in the blank 820b0d07801df89_10
Rent		fill in the blank 820b0d07801df89_11
Total fixed costs			fill in the blank 820b0d07801df89_12
Total overhead costs			$fill in the blank 820b0d07801df89_13

Question Content Area

3. Which of the four data analytic typesdescriptive, diagnostic, predictive, or prescriptiveis being used in creating the three flexible budgets? (See Exhibits 2.5 and 2.6, pp. 37, 40, for a review of data analytic types.)

The flexible budgets are used

-descriptively, diagnosticly, predictively, prescriptively-

to determine how well the company will do under various sales scenarios.