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Compute overhead budget.
Timothy, Inc., uses a flexible budget for overhead costs. The company expects to produce 40,000 units of the product it manufactures. Each unit requires 0.40 direct labor hours. The cost formulas for each of the four overhead items (where X is measured in direct labor hours) is as follows:
Cost Formula Power 0.40X Maintenance $15,000 + 0.60X Indirect labor $18,000 + 2.50X Rent $20,000
Required:
a. Prepare an overhead budget for the expected activity level for the coming year. b. Prepare an overhead budget that reflects production that is 25 percent lower than expected.
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