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

Exercise 44

Flexible Budget for Various Production Levels
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 direct labor hours required for production that is 10% higher than expected. Calculate the direct labor hours required for production that is 20% lower than expected.
2. Prepare an overhead budget that reflects production that is 10% higher than expected, and for production that is 20% lower than expected. ( Hint : Use total direct labor hours calculated in Requirement 1.)