# Budgeting help!!

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Registered Posts: 5 New contributor 🐸
Can someone help please...

Don't know why but i'm stuggling to make sense of the Variable production overhead part in this question, everything else is easy enough but not sure how to work that bit out?

Calculate these sales and cost budgets for April.

Budget for the year Budget for April

Units sold 24,000 2,000
Units produced 25,000 2,500
£ £
Sales 480,000

Materials used 80,000
Labour 64,800
Variable production overhead 30,000
Fixed overhead 1,800

Each unit is made from 2 kg of material costing £1.60 per kg.

It takes 12 minutes to make each item.

350 hours of basic time is available in the month. Any extra hours must be worked in overtime.

The basic rate is £12 per hour. Overtime is paid at time and a half (50% more than basic rate).

Variable overhead relates to labour hours, including overtime.

Fixed overhead costs are incurred evenly through the year.

## Comments

• Registered Posts: 157 Dedicated contributor 🦉
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are you sure that 24000 or 2400 for me 2400 make more sense because of labour hours available of 350 hours there for 2400*12/60=480 so overtime just 130 if 24000*12/60=4800 that is too much overtime to pay
• Registered Posts: 5 New contributor 🐸
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Apologies, 1st column is per year and the second column is for the month
• Registered Posts: 17 New contributor 🐸
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Hi, I'm sure you would treat the "variable production overhead" the same as you would a normal variable cost. So divide the variable production overhead cost for the year by the number of units produced in the year, then you times this by the number of units produced in the month. Hope that helps.
• Registered, Moderator Posts: 2,034 mod
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To answer your question about the variable production overhead; I think this would be the approach

12 minutes per unit = 0.2 hrs/unit
25,000 units x 0.2 = 5,000 hours
5000 hrs x £6.00/hr absorption rate = £30,000

I hope that helps.
I have made an attempt to understand the labour cost of £64,800
Is it made up of 350 hrs per month x 12 months per year x £12 per hour
plus 800 hours of overtime over the year x £18 per hour ?
Sandy
sandy@sandyhood.com
www.sandyhood.com
• Registered Posts: 144 Dedicated contributor 🦉
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Re: Budgeting

This is how I calculated my labour hour:

Hour worked 350 * 12 = 4200
unit produced 2500 *12/60 = (500)
Overtime 150* 18 = 2700

Total Labour hour 6900

hope this helps
• Registered Posts: 5 New contributor 🐸
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Thanks guys - you've been really helpful. I knew there was a simple calculation
• Registered Posts: 5 New contributor 🐸
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SandyHood wrote: »
To answer your question about the variable production overhead; I think this would be the approach

12 minutes per unit = 0.2 hrs/unit
25,000 units x 0.2 = 5,000 hours
5000 hrs x £6.00/hr absorption rate = £30,000

I hope that helps.
I have made an attempt to understand the labour cost of £64,800
Is it made up of 350 hrs per month x 12 months per year x £12 per hour
plus 800 hours of overtime over the year x £18 per hour ?

I was given the 1st column and just had to work out the 2nd. Unfortunately the format of copy and paste didn't quite work out in a table as i'd hoped so looks a bit confusing! That's how I would have worked out the labour cost too!
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