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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. Prepare an overhead budget for the expected activity level for the coming year.
B. Prepare an overhead budget that reflects production that is 10% higher than expected (for both products).
C. Prepare an overhead budget that reflects production that is 10% lower than expected (for both products).
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