Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 39

Overhead Budget for a Particular Level of Activity
Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDiet is a standard mixture for healthy dogs. SpecialDiet is a reduced protein formulation for older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 80,000 bags of each product during the coming year. BasicDiet requires 0.20 direct labor hours per bag, and SpecialDiet requires 0.30 direct labor hours per bag. Ladan has developed the following fixed and variable costs for each of the four overhead items:

Refer to the information for Healthy Pet Company above.
Required:
1. Calculate the total direct labor hours required for the production of 80,000 bags of Basic-Diet and 80,000 bags of SpecialDiet.
2. Prepare an overhead budget for the expected activity level (calculated in Requirement 1) for the coming year.