Miami Solar manufactures solar panels for industrial use. The company budgets production of 4,900 units (solar panels) in July and 4,900 units in August. Each unit requires 5 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.

Overhead budget:

Variable overhead = 274,400

Fixed overhead = 180,000

Total overhead = $454,400

Explanation:

Giving the following information:

Production = 4,900 units

Each unit requires 5 hours of direct labor at a rate of $16 per hour.

Variable factory overhead is budgeted to be 70% of direct labor cost

Fixed factory overhead is $180,000 per month.

First, we need to determine the direct labor cost:

Direct labor cost = (4,900*5) * 16 = $392,000

Now, we can calculate the overhead budget:

Overhead budget:

Variable overhead = (0.7*392,000) = 274,400

Fixed overhead = 180,000

Total overhead = $454,400