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 400,000 units of the commercial cleaner and 140,000 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	$34,600 + $1.25 DLH
Power	$0.50 DLH
Indirect labor	$68,500 + $2.30 DLH
Rent	$31,100

Required:

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
Budgeted direct labor hours		fill in the blank 29f7d0fc5f9804d_1
Variable costs:
Maintenance	$fill in the blank 29f7d0fc5f9804d_2	$fill in the blank 29f7d0fc5f9804d_3
Power	fill in the blank 29f7d0fc5f9804d_4	fill in the blank 29f7d0fc5f9804d_5
Indirect labor	fill in the blank 29f7d0fc5f9804d_6	fill in the blank 29f7d0fc5f9804d_7
Total variable costs			$fill in the blank 29f7d0fc5f9804d_8
Fixed costs:
Maintenance		$fill in the blank 29f7d0fc5f9804d_9
Indirect labor		fill in the blank 29f7d0fc5f9804d_10
Rent		fill in the blank 29f7d0fc5f9804d_11
Total fixed costs			fill in the blank 29f7d0fc5f9804d_12
Total overhead costs			$fill in the blank 29f7d0fc5f9804d_13

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
Budgeted direct labor hours		fill in the blank af980a05efe604b_1
Variable costs:
Maintenance	$fill in the blank af980a05efe604b_2	$fill in the blank af980a05efe604b_3
Power	fill in the blank af980a05efe604b_4	fill in the blank af980a05efe604b_5
Indirect labor	fill in the blank af980a05efe604b_6	fill in the blank af980a05efe604b_7
Total variable costs			$fill in the blank af980a05efe604b_8
Fixed costs:
Maintenance		$fill in the blank af980a05efe604b_9
Indirect labor		fill in the blank af980a05efe604b_10
Rent		fill in the blank af980a05efe604b_11
Total fixed costs			fill in the blank af980a05efe604b_12
Total overhead costs			$fill in the blank af980a05efe604b_13

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
Budgeted direct labor hours		fill in the blank 46a002f6e052ff8_1
Variable costs:
Maintenance	$fill in the blank 46a002f6e052ff8_2	$fill in the blank 46a002f6e052ff8_3
Power	fill in the blank 46a002f6e052ff8_4	fill in the blank 46a002f6e052ff8_5
Indirect labor	fill in the blank 46a002f6e052ff8_6	fill in the blank 46a002f6e052ff8_7
Total variable costs			$fill in the blank 46a002f6e052ff8_8
Fixed costs:
Maintenance		$fill in the blank 46a002f6e052ff8_9
Indirect labor		fill in the blank 46a002f6e052ff8_10
Rent		fill in the blank 46a002f6e052ff8_11
Total fixed costs			fill in the blank 46a002f6e052ff8_12
Total overhead costs			$fill in the blank 46a002f6e052ff8_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

descriptivelydiagnosticlypredictivelyprescriptively

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