A flexible budget for 15,000 hours showed variable manufacturing overhead of $90,000 and fixed manufacturing overhead of $120,000. The total overhead costs at 25,000 hours would be:
Answered on
To calculate the total overhead costs at 25,000 hours, we need to consider both the variable and fixed components of the manufacturing overhead.
1. Variable Manufacturing Overhead: Variable overhead changes in direct proportion to changes in the activity level (which in this case is hours). If 15,000 hours are associated with $90,000 in variable overhead, we can calculate the variable cost per hour and then apply that to 25,000 hours.
First, let's find the variable cost per hour: Variable cost per hour = Total variable overhead / Total hours Variable cost per hour = $90,000 / 15,000 hours Variable cost per hour = $6 per hour
Next, we calculate the variable overhead for 25,000 hours: Variable overhead at 25,000 hours = Variable cost per hour * Total hours Variable overhead at 25,000 hours = $6 per hour * 25,000 hours Variable overhead at 25,000 hours = $150,000
2. Fixed Manufacturing Overhead: Fixed overhead does not change with the activity level; it remains constant regardless of the hours worked. Therefore, the fixed manufacturing overhead at 25,000 hours remains the same as it was for 15,000 hours. Fixed manufacturing overhead = $120,000
3. Total Manufacturing Overhead at 25,000 hours: Now, we can add the variable overhead and fixed overhead together to find the total. Total overhead = Variable overhead + Fixed overhead Total overhead = $150,000 (variable) + $120,000 (fixed) Total overhead = $270,000
So, the total overhead costs at 25,000 hours would be $270,000.