Question

Corrington Manufacturing Company prepared a fixed budget of 80,000 direct labor hours, with estimated overhead costs of $400,000 for variable overhead and $120,000 for fixed o verhead. Corrington then prepared a flexible budget at 78,000 labor hours. How much is total overhead costs at this level of activity

Answer 1

Answer:

Total Overhead Cost  is  $ 510,000  for 78,000 direct labor hours

Explanation:

Corrington Manufacturing Company

Fixed Budget  80,000 direct labor hours

Variable Overhead  $400,000

Fixed  Overhead $120,000

Flexible Budget 78,000 direct labor hours

Variable Over head = $ 400,000/ 80,000 * 78,000= $ 390,000

Fixed  Overhead $120,000

Total Overhead Cost  is $ 510,000  for 78,000 direct labor hours

First we divide the variable overhead with the budgeted number of direct labor hours and then multiply it with the flexible labour hours to get the variable overhead at this activity level . The fixed overhead does not change.