The master budget of Harrison Company shows that the planned activity level for

Question

The master budget of Harrison Company shows that the planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the following manufacturing overhead costs are expected:

Indirect labor $480,000 Machine supplies 120,000 Indirect materials 140,000 Depreciation on factory building 80,000 Total manufacturing overhead $820,000

A flexible budget for a level of activity of 120,000 machine hours would show total manufacturing overhead costs of: (Answer: $968,000)

Explanation / Answer

Predetermined variable overhead rate = Total estimated variable overhead/ estimated machine hours

                                                      = (480000+120000+140000) / 100,000

                                                      = 740000 / 100000

                                                       = $ 7.40 per machine hours

Estimated fixed overhead = $ 80000

Flexible budget = (7.4 *120000) + 80000

                            = 888000+80000

                            = $ 968,000

**Indirect labor ,supplies ,material is variable because they varies with requirement.

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