Ceiling Fans by Ike\'s overhead budget for 2009 was as follows: Factory supervis

Question

Ceiling Fans by Ike's overhead budget for 2009 was as follows: Factory supervision $300,000 Utilities costs 150,000 Insurance 28,000 Property taxes 22,000 Depreciation 100,000 Total $600,000 600,000 units were produced in 2009. Direct labor cost is $18,000,000. For both 2009 and 2010, each unit required 3 direct labor hours at $10 per hour. In 2010, property taxes, insurance, and depreciation are expected to stay at 2009 levels. Utilities costs vary proportionally with units produced. Factory supervision increases by increments of $30,000 for every 200,000 increase in direct labor hours. The 2010 expected production is 1,200,000 units. What will be the value for factory supervision in the 2010 overhead budget? a. $570,000 b. $270,000 c. $450,000 d. $400,000

Explanation / Answer

a. $570000 is the right answer. Given Factory supervision increases by increments of $30,000 for every 200,000 increase in direct labor hours. Also Given For both 2009 and 2010, each unit required 3 direct labor hours at $10 per hour. Given 600,000 units were produced in 2009. and the 2010 expected production is 1,200,000 units. Given Factory supervision increases by increments of $30,000 for every 200,000 increase in direct labor hours. Total Incremental Labor hours for 2010 compared to 2009 = (1200000 - 600000) x 3hrs = 1800000 hrs. Factory Supervision increased by increase in Direct Labor hours = (1800000 / 200000) x $30000 = $270000 Value for Factory Supervision in 2010 = $300000 + $270000 = $570000

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