Reference no: EM133011285

Johnny Lee Incorporated 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 snow blowers, to garden tools (such as tillers and weed-whackers). The basic product line consists of three models, each moment 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 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 costs to products.

• Within the relevant range of output, you determine that the following factory fixed overhead costs per month should occur: Engineering support $16,000; insurance on the manufacturing facility $6,000; property taxes on the manufacturing facility $13,000, depreciation on manufacturing equipment $14,800, and indirect labor costs of supervisory salaries $15,800, setup labor $3.400, and materials handling $3,500. Variable factory overhead costs are budgeted at $71,000 per machine hour, as follows: electricity $18.00, indirect materials for Material A of $11.00 and for Material B of $14.00; indirect labor --- maintenance $16.00 and production related supplies $12.00.

Required:

Problem 1.) Prepare a flexible budget for Johnny Lee for each of the following monthly levels of machine hours: (a) 5,000, (b) 6,000 and (c) 7,000.

Problem 2.) Generate an equation to represent within the relevant range, the factory overhead costs per month for Johnny Lee. Use this equation to estimate monthly total overhead cost for machine hours of 4,000 to 7,000 in increments of 500.