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:

Physiological Needs

Basic human needs that are essential for survival, such as food, water, shelter, and sleep, as identified in Maslow's hierarchy of needs.

Relay Assembly

A method in manufacturing where components are assembled progressively as they pass along a sequence of workstations.

Participatory Supervision

is a management approach where supervisors collaborate with subordinates in decision-making processes and work management.

Esteem Needs

A concept from Maslow's hierarchy of needs that refers to the human desire for respect, self-esteem, and recognition from others.