7. In the Johnson Company, indirect labor is budgeted for $72,000 and factory su

Question

7. In the Johnson Company, indirect labor is budgeted for $72,000 and factory supervision is budgeted for $24,000 at normal capacity of 160,000 direct labor hours. If 170,000 direct labor hours are worked, flexible budget total for these costs is: (Answer: $100,500)

9. In the Parker Company, indirect labor is budgeted for $108,000 and factory supervision is budgeted for $36,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is: (Answer: $157,500)

Explanation / Answer

7)Variable overhead rate = 72000 / 160000 = $ .45 per hour

Fixed overhead = $ 24000

Flexible budget = (170000*.45) + 24000

                           = 76500+24000

                          =$ 100500

9) Variable overhead rate = 108000 / 160000 = .675 per hour

Fixed overhead =$ 36000

Flexible budget = (.675 *180000) + 36000

                              = 121500+36000

                              = 157500

**supervisor salary is fixed whereas indirect labor wages varies with requirement.

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