Direct labor and factory overhead budgeting B-21.06 lkon Equipment produces exer

ID: 2563472 • Letter: D

Question

Direct labor and factory overhead budgeting B-21.06 lkon Equipment produces exercise equipment. The following schedule reveals anticipated monthly production of bicycles for the first three months of the year January February March 11,000 14,000 12,500 lkon budgets for three direct labor hours per bicycle, at an average cost of $16.50 per hour. Variablefactoy overhead is applied at the rate of $10.25 per direct labor hour. Fixed overhead is expected to run $11000 per month, which includes $10,000 per month of noncash expenses related to depreciation. Determine the total expected monthly cash outflow for labor and overhead.

Explanation / Answer

Particulars

January

February

March

No. of Bicycles

11,000

14,000

12,500

No. of labour hours / bicycle

3.00

Total no. of labour hours ( b*a )

33,000

42,000

37,500

Avg. cost per hour

16.50

Cash outflow for labour overhead ( d*c )

544,500

693,000

618,750

Fixed overheads Less depreciation (See note)

100,000

Variable factory overhead rate per direct labour hour

10.25

Cash outflow for variable factory overhead ( g*c )

338,250

430,500

384,375

Total expected monthly cash outflow ( e+f+h)

982,750

1,223,500

1,103,125

Note: Depreciation is a non-cash expense and hence is reduced from the fixed overheads

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