Question

Direct Materials Purchases Budget: Direct Labor Budget

Crescent Company produces stuffed toy animals; one of these is “Arabeau the Cow.” Each Arabeau takes 0.20 yard of fabric (white with irregular black splotches) and 10 ounces of polyfiberfill. Fabric costs $3.40 per yard and polyfiberfill is $0.05 per ounce. Crescent has budgeted production of Arabeaus for the next four months as follows:

	Units
October	44,000
November	80,000
December	60,000
January	40,000

Inventory policy requires that sufficient fabric be in ending monthly inventory to satisfy 20 percent of the following month’s production needs and sufficient polyfiberfill be in inventory to satisfy 40 percent of the following month’s production needs. Inventory of fabric and polyfiberfill at the beginning of October equals exactly the amount needed to satisfy the inventory policy.

Each Arabeau produced requires (on average) 0.10 direct labor hour. The average cost of direct labor is $15 per hour.

Required:

1. Prepare a direct materials purchases budget of fabric for the last quarter of the year showing purchases in units and in dollars for each month and for the quarter in total. Round your answers to the nearest cent, if required.

Crescent Company
Direct Materials Purchases Budget for Fabric
For the Fourth Quarter
	October	November	December	Total
Units produced
DM per unit (yd.)
Production needs
Desired ending inventory (yd.)
Total needed
Less: Beginning inventory
DM to be purchased (yd.)
Cost per yard	$	$	$	$
Total purchase cost	$	$	$	$

2. Prepare a direct materials purchases budget of polyfiberfill for the last quarter of the year showing purchases in units and in dollars for each month and for the quarter in total. Round your answers to the nearest cent, if required.

Crescent Company
Direct Materials Purchases Budget for Polyfiberfill
For the Fourth Quarter
	October	November	December	Total
Units produced
DM per unit (oz.)
Production needs
Desired ending inventory (oz.)
Total needed
Less: Beginning inventory
DM to be purchased (oz.)
Cost per ounce	$	$	$	$
Total purchase cost	$	$	$	$

3. Prepare a direct labor budget for the last quarter of the year showing the hours needed and the direct labor cost for each month and for the quarter in total. Round your answers to the nearest cent, if required.

Crescent Company
Direct Labor Budget
For the Fourth Quarter
	October	November	December	Total
Units produced
Direct labor time per unit (hours)
Direct labor hours needed
Cost per direct labor hour	$	$	$	$
Total direct labor cost	$	$	$	$

Answer 1

1) Direct Materials Purchase Budget for Fabric:
Crescent Company
Direct Materials Purchases Budget for Fabric
For the Fourth Quarter
	October	November	December	Total
Units produced (a)	44,000	80,000	60,000	184,000
DM per unit (yd.) (b)	0.20	0.20	0.20	0.20
Production needs (a*b)	8,800	16,000	12,000	36,800
Add: Desired ending inventory (yd.) (16,000*20/100); (12,000*20/100); (40,000*0.20*20/100)	3,200	2,400	1,600	7,200
Total needed	12,000	18,400	13,600	44,000
Less: Beginning inventory (last month's ending inventory will be the beginning inventory in current month)	1,760	3,200	2,400	7,360
DM to be purchased (yd.) (c )	10,240	15,200	11,200	36,640
Cost per yard (d)	$3.40	$3.40	$3.40	$3.40
Total purchase cost (c * d)	$34,816	$51,680	$38,080	$124,576
2) Direct Materials Purchase Budget for Polyfiberfill:
Crescent Company
Direct Materials Purchases Budget for Polyfiberfill
For the Fourth Quarter
	October	November	December	Total
Units produced (a)	44,000	80,000	60,000	184,000
DM per unit (oz.) (b)	10.00	10.00	10.00	10.00
Production needs (a*b)	440,000	800,000	600,000	1,840,000
Add: Desired ending inventory (oz.) (800,000*40/100); (600,000*40/100); (40,000*10*40/100)	160,000	120,000	160,000	440,000
Total needed	600,000	920,000	760,000	2,280,000
Less: Beginning inventory (last month's ending inventory will be the beginning inventory in current month)	88,000	160,000	120,000	368,000
DM to be purchased (oz.) (c )	512,000	760,000	640,000	1,912,000
Cost per yard (d)	$0.05	$0.05	$0.05	$0.05
Total purchase cost (c * d)	$25,600	$38,000	$32,000	$95,600
3) Direct Labor Budget:
Crescent Company
Direct Labor Budget
For the Fourth Quarter
	October	November	December	Total
Units produced (a)	44,000	80,000	60,000	184,000
Direct labor time per unit (hours) (b)	0.10	0.10	0.10	0.10
Direct labor hours needed (c = a*b)	4,400	8,000	6,000	18,400
Cost per direct labor hour (d)	$15	$15	$15	$15
Total direct labor cost (c*d)	$66,000	$120,000	$90,000	$276,000