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Kerekes Manufacturing Corporation has prepared the following overhead budget for

ID: 2589189 • Letter: K

Question

Kerekes Manufacturing Corporation has prepared the following overhead budget for next month.

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 2,600 machine-hours rather than 2,700 machine-hours?

Multiple Choice

$63,670

$63,180

$64,280

$65,610

Activity level 2,700 machine-hours Variable overhead costs: Supplies $ 12,690 Indirect labor 23,220 Fixed overhead costs: Supervision 16,500 Utilities 6,100 Depreciation 7,100 Total overhead cost $ 65,610

Explanation / Answer

Variable overhead cost per unit                = 12690 + 23220

                                                                                2700

                                                                = $ 13.3 per machine hour.

Fixed overhead cost per unit      = 16500 + 6100 + 7100

                                                                                    2700

               

                                                                = $ 11 per machine hour.

BUDGETED OVERHEAD COST FOR NEXT MONTH

HEADINGS

CALCULATIONS

AMOUNT IN $

Variable Overhead cost

2600 machine hours * $13.3

34580

Fixed Overhead cost

2700 machine hours * $ 11.0

29700

TOTAL OVERHEAD COST

64280

Note: For budget, fixed overhead cost is calculated at total capacity since fixed overhead remains same irrespective of actual units.

Total Budgeted overhead cost would be $64,280 for next month when activity level is 2,600 machine hours.

BUDGETED OVERHEAD COST FOR NEXT MONTH

HEADINGS

CALCULATIONS

AMOUNT IN $

Variable Overhead cost

2600 machine hours * $13.3

34580

Fixed Overhead cost

2700 machine hours * $ 11.0

29700

TOTAL OVERHEAD COST

64280