Paris Manufacturing Ltd produces souvenirs and gifts. The policy of the company is to apply factory overhead to jobs based on machine hours. The budgeted fixed overhead consists of $70 000 managers salary, depreciation of $27 500 and rent of $60 000. The remainder is variable overhead made up of the following items.

For the year 2020, the factory operates 35 hours per week, and there are 52 weeks in the year.

Required:

1. Prepare a factory overhead budget for the year 2020 based on the estimated production level.

(12 marks)

2. Calculate the predetermined overhead rate based on machine hours.

(2 marks)

3. Distinguish between variable cost and fixed cost.

(6 marks)

Indirect labour Indirect materials Electricity Repairs and maintenance $ 13.00 14.50 5.00 1.00