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 0.10 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	$31,700

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 2fba4b017fe9016_1	blank
Variable costs:
Maintenance	$fill in the blank 2fba4b017fe9016_2	$fill in the blank 2fba4b017fe9016_3
Power	fill in the blank 2fba4b017fe9016_4	fill in the blank 2fba4b017fe9016_5
Indirect labor	fill in the blank 2fba4b017fe9016_6	fill in the blank 2fba4b017fe9016_7
Total variable costs			$fill in the blank 2fba4b017fe9016_8
Fixed costs:
Maintenance		$fill in the blank 2fba4b017fe9016_9
Indirect labor		fill in the blank 2fba4b017fe9016_10
Rent		fill in the blank 2fba4b017fe9016_11
Total fixed costs			fill in the blank 2fba4b017fe9016_12
Total overhead costs			$fill in the blank 2fba4b017fe9016_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 71bceb08e015020_1	blank
Variable costs:
Maintenance	$fill in the blank 71bceb08e015020_2	$fill in the blank 71bceb08e015020_3
Power	fill in the blank 71bceb08e015020_4	fill in the blank 71bceb08e015020_5
Indirect labor	fill in the blank 71bceb08e015020_6	fill in the blank 71bceb08e015020_7
Total variable costs			$fill in the blank 71bceb08e015020_8
Fixed costs:
Maintenance		$fill in the blank 71bceb08e015020_9
Indirect labor		fill in the blank 71bceb08e015020_10
Rent		fill in the blank 71bceb08e015020_11
Total fixed costs			fill in the blank 71bceb08e015020_12
Total overhead costs			$fill in the blank 71bceb08e015020_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 8b9f0d002fc8023_1	blank
Variable costs:
Maintenance	$fill in the blank 8b9f0d002fc8023_2	$fill in the blank 8b9f0d002fc8023_3
Power	fill in the blank 8b9f0d002fc8023_4	fill in the blank 8b9f0d002fc8023_5
Indirect labor	fill in the blank 8b9f0d002fc8023_6	fill in the blank 8b9f0d002fc8023_7
Total variable costs			$fill in the blank 8b9f0d002fc8023_8
Fixed costs:
Maintenance		$fill in the blank 8b9f0d002fc8023_9
Indirect labor		fill in the blank 8b9f0d002fc8023_10
Rent		fill in the blank 8b9f0d002fc8023_11
Total fixed costs			fill in the blank 8b9f0d002fc8023_12
Total overhead costs			$fill in the blank 8b9f0d002fc8023_13

Feedback Area

Feedback

Consider what this will affect and fill out the two schedules keeping in mind the definition of fixed overhead and variable overhead.

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

descriptivelydiagnosticlypredictivelyprescriptively

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