Question: Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. Basic Diet is a standard mixture for healthy dogs. Special Diet is a reduced protein formulation for older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 100,000 bags of each product during the coming year. BasicDiet requires 0.30 direct labor hours per bag, and SpecialDiet requires 0.40 direct labor hours per bag. Ladan has developed the following fixed and variable costs for each of the four overhead items:
Flexible Budget for Various Production Levels Refer to the information for Healthy Pet Company on the previous page.
Required: 1. Calculate the direct labor hours required for production that is 10 percent higher than expected. Calculate the direct labor hours required for production that is 20 percent lower than expected.
2. Prepare an overhead budget that reflects production that is 10 percent higher than expected, and for production that is 20 percent lower than expected.