Question

Bonita Industries prepared a fixed budget of 75000 direct labor hours, with estimated overhead costs of $375000 for variable overhead and $90000 for fixed overhead. Bonita then prepared a flexible budget at 67000 labor hours. How much is total overhead costs at this level of activity?

Answer 1

Answer: $425,000

Explanation: The total overhead cost can be computed suing following formula :-

total overhead cost = fixed overhead cost + variable overhead cost

where,

fixed overhead cost = $90,000

$variable\:overhead\:cost=\frac{\ 375,000}{75,000\:hours}\times 67,000\:hours$

=$335,000

so,putting the values into equation we get :-

total overhead cost = $90,000 + $335,000

                                 = $425,000