The factory overhead budget is based upon predictions for each item that affects the factory. The costs are separated by variable and fixed costs. The Unknown Comic allocates factory overhead based on a rate of $3 per direct labor hour. Total fixed factory costs per quarter are also shown below:
|Applied variable factory overhead rate per direct labor hour||$3|
|Fixed overhead costs per quarter||
|Depreciation of production equipment||$1,200|
|Other factory overhead costs||$300|
Separate budget calculations would be made for each of the fixed costs shown above.
Variable overhead is calculated as follows:
direct labor hours needed for production (from direct labor budget)
x variable overhead cost per direct labor hour
= budgeted variable overhead
The bottom line for this budget is the estimate of the total factory overhead costs that will be incurred each quarter. The budgeted total overhead costs for the year, $16,280, will be needed for the budgeted schedule of cost of goods manufactured.