Make an overhead budget for the expected activity level

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Question - Sarah Lindsay, controller for Cold Cream Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of frozen desserts: Icy and Tasty. The two desserts use common raw materials in different proportions. The company expects to produce 200,000 L of each product during the coming year. Icy requires 0.25 direct labour hours per litre, and Tasty requires 0.30. Sarah has developed the following fixed and variable costs for each of the four overhead items:

Overhead Item

Fixed Cost

Variable Rate per DLH

Maintenance

$52,000

$1.20

Power


1.50

Indirect labour

79,500

4.80

Rent

54,000


Required -

A. Make an overhead budget for the expected activity level for the coming year.

B. Make an overhead budget that reflects production that is 10% higher than expected (for both products).

C. Make an overhead budget that reflects production that is 10% lower than expected (for both products).

Reference no: EM133175467

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