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Johnny Lee Inc. produces a line of small gasoline-powered engines that can be used in a...

Johnny Lee Inc. produces a line of small gasoline-powered engines that can be used in a variety of residential machines, ranging from different types of lawnmowers, to snowblowers, to garden tools (such as tillers and weed-whackers). The basic product line consists of three different models, each meant to fill the needs of a different market. Assume you are the cost accountant for this company and that you have been asked by the owner of the company to construct a flexible budget for factory overhead costs, which seem to be growing faster than revenues. Currently, the company uses machine hours (MHs) as the basis for assigning both variable and fixed factory overhead costs to products. Within the relevant range of output, you determine that the following factory fixed overhead costs per month should occur: engineering support, $15,000; insurance on the manufacturing facility, $5,000; property taxes on the manufacturing facility, $12,000; depreciation on manufacturing equipment, $13,800; and indirect labor costs of supervisory salaries, $14,800, setup labor, $2,400, and materials handling, $2,500. Variable factory overhead costs are budgeted at $21.00 per machine hour, as follows: electricity, $8.00; indirect materials for Material A of $1.00 and for Material B of $4.00; indirect labor—maintenance, $6.00; and production-related supplies, $2.00.

Business   Accounting   
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Answer #1

Johnny Lee Inc.

Flexible budget for overheads

Particulars

Amount

Fixed overheads:
  1. Engineering support

15,000
  1. insurance on the manufacturing facility

5,000
  1. property taxes on the manufacturing facility

12,000
  1. depreciation on manufacturing equipment

13,800
  1. supervisory salaries

14,800
  1. setup labor

2,400
  1. materials handling

2,500

Variable overheads:
  1. Electricity

8*x
  1. Indirect materials – Material A

1*x
  1. Indirect materials – Material B

4*x
  1. Indirect labor- maintenance

6*x
  1. Production related supplies

2*x

Here, x refers to the number of machine hours for the month.

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