Chapter 8, Problem 5CE

Johnston Company cleans and applies powder coat paint to metal items on a job-order basis. Johnston has budgeted the following amounts for various overhead categories in the coming year.

In the coming year, Johnston expects to powder coat 120,000 units. Each unit takes 1.3 direct labor hours. Johnston has found that supplies and gas (used to run the drying ovens—all units pass through the drying ovens after powder coat paint is applied) tend to vary with the number of units produced. All other overhead categories are considered to be fixed. (Round all overhead rates to the nearest cent.)

Required:

1. 1. Calculate the number of direct labor hours Johnston must budget for the coming year. Calculate the variable overhead rate. Calculate the total fixed overhead for the coming year.
2. 2. Prepare an overhead budget for Johnston for the coming year. Show the total variable overhead, total fixed overhead, and total overhead. Calculate the fixed overhead rate and the total overhead rate (rounded to the nearest cent).
3. 3. What if Johnston had expected to make 118,000 units next year? Assume that the variable overhead per unit does not change and the total fixed overhead amounts do not change. Calculate the new budgeted direct labor hours and prepare a new overhead budget. Calculate the fixed overhead rate and the total overhead rate (rounded to the nearest cent).