Description
Your company would like you to prepare a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows:
Indirect labor $5.00
Indirect materials 2.50
Maintenance .80
Utilities .30
Fixed overhead costs per month are:
Supervision $800
Insurance 200
Property taxes 300
Depreciation 900
The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per month.
Instructions
Prepare a flexible manufacturing overhead budget memo for the expected range of activity, using increments of 1,000 machine hours. Write a memo to your manager, briefly summarizing (explaining) the budget you prepared. Also, explain to your manager why a flexible budget is more advantageous than a static budget. Include the budget as part of (or as an attachment to) your memo.
Sample Solution
