Earth,Inc,is Developing Flexible Budgets for Each Department as Part of Its

question 95

Essay

Earth,Inc.,is developing flexible budgets for each department as part of its plan to use standard costs.Normal monthly volume in the Sifting Department is 50,000 direct labor hours.At normal volume,department fixed costs include $70,000 for power and $40,000 for maintenance,and salaries of $70,000 per month.Indirect variable labor is $120,000,which involves 15,000 hours of indirect labor at $8 per hour.Other variable costs in the Sifting Department are as follows:
$\begin{array}{lr}\text { Tools and supplies } & \$ 3.00 \text { per machine hour } \\\text { Maintenance } & 2.50 \text { per machine hour } \\\text { Power } & 3.50 \text { per machine hour } \\\text { Depreciation } & 4.50 \text { per machine hour }\end{array}$
Normal volume is 40,000 machine hours per month.The company uses a service (or usage)hours method to depreciate its fixed assets.
a. Prepare a departmental flexible overhead budget for 30,000 machine hours and for 40,000 machine hours.
b. Did you treat depreciation expense as a variable or a fixed cost? Defend your approach.

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Definitions:

Passive Subjects

Individuals in a study who do not actively participate but are observed or have data collected about them.

Contingencies

Conditions, events, or situations that are dependent on other factors or conditions occurring first.

Behavioral Signature

A unique pattern of actions or reactions that are characteristic of an individual across different situations.

Mischel

Refers to Walter Mischel, a psychologist known for his work on personality theory and cognitive-affective behavior.