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 140,000 units of the household cleaner during the coming year. The commercial cleaner requires 0.05 direct labor hour per unit, and the household cleaner requires 0.08. 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	$31,100

Required:

Question Content Area

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

	Per DLH		blank
Budgeted direct labor hours	blank	fill in the blank fe998ff72ff8043_1	blank
Variable costs:
Maintenance	$fill in the blank fe998ff72ff8043_2	$fill in the blank fe998ff72ff8043_3
Power	fill in the blank fe998ff72ff8043_4	fill in the blank fe998ff72ff8043_5
Indirect labor	fill in the blank fe998ff72ff8043_6	fill in the blank fe998ff72ff8043_7
Total variable costs			$fill in the blank fe998ff72ff8043_8
Fixed costs:
Maintenance		$fill in the blank fe998ff72ff8043_9
Indirect labor		fill in the blank fe998ff72ff8043_10
Rent		fill in the blank fe998ff72ff8043_11
Total fixed costs			fill in the blank fe998ff72ff8043_12
Total overhead costs			$fill in the blank fe998ff72ff8043_13

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

	Per DLH	blank	blank
Budgeted direct labor hours	blank	fill in the blank 8f280cf4f02400d_1	blank
Variable costs:
Maintenance	$fill in the blank 8f280cf4f02400d_2	$fill in the blank 8f280cf4f02400d_3
Power	fill in the blank 8f280cf4f02400d_4	fill in the blank 8f280cf4f02400d_5
Indirect labor	fill in the blank 8f280cf4f02400d_6	fill in the blank 8f280cf4f02400d_7
Total variable costs			$fill in the blank 8f280cf4f02400d_8
Fixed costs:
Maintenance		$fill in the blank 8f280cf4f02400d_9
Indirect labor		fill in the blank 8f280cf4f02400d_10
Rent		fill in the blank 8f280cf4f02400d_11
Total fixed costs			fill in the blank 8f280cf4f02400d_12
Total overhead costs			$fill in the blank 8f280cf4f02400d_13

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

	Per DLH	blank	blank
Budgeted direct labor hours	blank	fill in the blank 35f3f6006fdcfe7_1	blank
Variable costs:
Maintenance	$fill in the blank 35f3f6006fdcfe7_2	$fill in the blank 35f3f6006fdcfe7_3
Power	fill in the blank 35f3f6006fdcfe7_4	fill in the blank 35f3f6006fdcfe7_5
Indirect labor	fill in the blank 35f3f6006fdcfe7_6	fill in the blank 35f3f6006fdcfe7_7
Total variable costs			$fill in the blank 35f3f6006fdcfe7_8
Fixed costs:
Maintenance		$fill in the blank 35f3f6006fdcfe7_9
Indirect labor		fill in the blank 35f3f6006fdcfe7_10
Rent		fill in the blank 35f3f6006fdcfe7_11
Total fixed costs			fill in the blank 35f3f6006fdcfe7_12
Total overhead costs			$fill in the blank 35f3f6006fdcfe7_13

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.