Question

Miami Solar budgets production of 5,300 solar panels for August. Each unit requires 4 hours of direct labor at a rate of \(16 per hour. Variable factory overhead is budgeted to be 70% of direct labor cost, and fixed factory overhead is \)180,000 per month. Prepare a factory overhead budget for August.

Short answer

The total factory overhead budget for the month of August will be $417,440.

Step-by-step solution

Computation of total factory overhead budget for August

$$\begin{gathered} \mathbf{Totalfactoryoverheadbudget}\mathbf{=}\mathbf{Variableoverheadbudget}\mathbf{+}\mathbf{Fixedproductionoverhead} \\ \mathbf{=}\mathbf{\$}\mathbf{237}\mathbf{,}\mathbf{440}\mathbf{+}\mathbf{\$}\mathbf{180}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{417}\mathbf{,}\mathbf{440} \end{gathered}$$

Working notes

$$\begin{gathered} \mathbf{Variableoverheadbudget}\mathbf{=}\left(\mathbf{Totalrequiredhours}\mathbf{\times }\mathbf{Budgetedproductionunits}\mathbf{\times }\mathbf{Directlaborrate}\right)\mathbf{\times }\mathbf{Overheadpercentage} \\ \mathbf{=}\left(\mathbf{4}\mathbf{\times }\mathbf{5}\mathbf{,}\mathbf{300}\mathbf{\times }\mathbf{\$}\mathbf{16}\right)\mathbf{\times }\mathbf{70}\mathbf{\%} \\ \mathbf{=}\mathbf{\$}\mathbf{339}\mathbf{,}\mathbf{200}\mathbf{\times }\frac{\mathbf{70}}{\mathbf{100}} \\ \mathbf{=}\mathbf{\$}\mathbf{237}\mathbf{,}\mathbf{440} \end{gathered}$$