Kerekes Manufacturing Corporation has prepared the following overhead budget for

Question

Kerekes Manufacturing Corporation has prepared the following overhead budget for next month. Activity Level - 2500 Machine Hours - Variable Overhead Cost: Supplies 12,250 Indirect Labor ---22,000 Fixed Overhead: Supervisor 15,500 Utilities -- 5500 Depreciation --- 6500 Total Cost --- 61,750 The company's variable overhead costs are driven by machine-hours. What would be the total budgeted overhead cost for next month if the activity level is 2,400 machine-hours rather than 2,500 machine-hours? Assume that the activity levels of 2,500 machine-hours and 2,400 machine-hours are within the same relevant range. (Points : 2) $59,830.00 $59,280.00 $60,380.00 $61,750.00

Explanation / Answer

At activity level of 2500,

Total variable overhead cost ($) = Supplies + Indirect labor = 12,250 + 22,000 = 34,250

So, Total variable overhead cost ($) at 2400 hours = 34,250 x 2,400 / 2,500 = 32,880

So, at 2400 hours, Total overhead cost = Variable overhead cost + Fixed overhead cost

= $32,880 + Supervisor salary + Utilities + Depreciation = $(32,880 + 15,500 + 5,500 + 6,500)

= $60,380

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