Solved: Battle Creek Storage Systems budgeted the

following factory over

Battle Creek Storage Systems budgeted the following factory over

Battle Creek Storage Systems budgeted the following factory overhead costs for the upcoming
year to help calculate variable and fixed predetermined overhead rates.
Indirect material: $2.50 per unit produced
Indirect labor: $3.00 per unit produced
Factory utilities: $3,000 plus $0.02 per unit produced
Factory machine maintenance: $10,000 plus $0.50 per unit produced
Material handling charges: $8,000 plus $0.12 per unit produced
Machine depreciation: $0.03 per unit produced
Building rent: $12,000
Supervisors’ salaries: $72,000
Factory insurance: $6,000
The company produces only one type of product that has a theoretical capacity of 100,000 units
of production during the year. Practical capacity is 80 percent of theoretical, and normal
capacity is 90 percent of practical. The company’s expected production for the upcoming year
is 70,000 units.
a. Prepare a flexible budget for the company using each level of capacity.
b. Calculate the predetermined variable and fixed overhead rates for each capacity measure
(round to the nearest cent when necessary).
c. The company decides to apply overhead to products using expected capacity as the
budgeted level of activity. The firm actually produces 70,000 units during the year. All actual
costs are as budgeted.
1. Prepare journal entries to record the incurrence of actual overhead costs and to apply
overhead to production. Assume cash is paid for costs when appropriate.
2. What is the amount of underapplied or overapplied fixed overhead at yearend?
d. Which measure of capacity would be of most benefit to management and why?

Battle Creek Storage Systems budgeted the following factory over

ANSWER
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