Question

ACTIVITY FLEXIBLE BUDGET

Cohlmia Company provided information on the following four overhead activities.

Activity                       DriverFixed              Cost                Variable Rate

Maintenance            Machine hours         $40,000         $ 2.50

Machining                 Machine hours          25,000            3.00

Setting up                  Setups                            -                  2,250

Purchasing               Purchase orders        75,000           6.00

Cohlmia has found that the following driver levels are associated with two different levels of production.

Driver                                     40,000 units              60,000 units

Machine hours                     60,000                       90,000

Setups                                          50                   70

Purchase orders                  10,000                       16,000

Required:

Prepare an activity-based flexible budget.

Answer 1

• All working forms part of the answer
• Requirement

Flexible Budget
Activity Level	40000 units	60000 units
Activity:
Maintenance	$190,000	$265,000
Machining	$205,000	$295,000
Setting up	$112,500	$157,500
Purchasing	$135,000	$171,000
Total Activity cost	$642,500	$888,500

• WORKING

Flexible Budget
Activity Level	40000 units	60000 units
Activity:
Maintenance	=40000+(60000 machine hours x $ 2.5)	=40000+(90000 x $ 2.5)
Machining	=25000+(60000 machine hours x $ 3)	=25000+(90000 x $ 3)
Setting up	=$ 2250 x 50 setups	=2250 x 70 setups
Purchasing	=75000+(10000 purchase orders x $ 6)	=75000+(16000 purchase orders x $ 6)
Total Activity cost	Total Activity cost	Total Activity cost