22-4 Steelcase Inc. is one of the largest manufactureres of office furniture in

Question

22-4

Steelcase Inc. is one of the largest manufactureres of office furniture in the United States. In Grand Rapids, Michigan, it assembles filing cabinets in an Assembly Department. Assume the following infomation for the assembly deptartment:

12 minutes

Prepare a flexible budget for 18000, 20000, 22000 filing cabinets for the month of August 2016 in the assembly Deptartment.

Direct labor per filing cabinet

12 minutes

Supervisor salaries 150000 per month deprecation 24500 per month direct labor rate 22 per hour

Explanation / Answer

Supervisors salaries and depreciation are fixed costs and will remain same irrespective of the level of activites.

Direct labour is variable and will vary proportionately with the level of activities. Based on these assumptions the flexible budget has been prepared.

Note:

Direct labour hours required for 18000 units = 18000 units * (12/60) hours / unit = 3600 units.

The others have been calculated in the same manner.

Flexible Budget of the Assembly department for the month of August (a) Number of cabinets 18000 20000 22000 (b) Dierct labour hours required 3600 4000 4400 (c) Direct labour rate per hour ($) 22 22 22 Variable cost: Direct labour cost ($) [b x c] 79200 88000 96800 Fixed Cost: Supervisor Salaries ($) 150000 150000 150000 Depreciation ($) 24500 24500 24500 Total cost of the assembly department ($) 253700 262500 271300

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