Question

Budget Preparation Westport Company is preparing its master budget for May. Use the estimates provided to determine the amounts necessary for each of the following requirements. (Estimates may be related to more than one requirement.)

a. What should total sales revenue be if territories E and W estimate sales of 50,000 and 100,000 units, respectively, and the unit selling price is $35?

b. If the beginning finished goods inventory is an estimated 6,000 units and the desired ending inventory is 8,000 units, how many units should be produced?

units

c. What dollar amount of materials should be purchased at $2.50 per pound if each unit of product requires 2.5 pounds and beginning and ending materials inventories should be 12,000 and 13,500 pounds, respectively.

$

d. How much direct labor cost should be incurred if each unit produced requires 0.5 hours at an hourly rate of $16? $ e. How much manufacturing overhead should be incurred if fixed manufacturing overhead is $45,000 and variable manufacturing overhead is $2 per direct labor hour?

$

Answer 1

Answer a)

Calculation of total sale revenue

Total sales revenue = Aggregate number of units sold in both territories X Selling price per unit

                                     = (50,000 units + 100,000 units) X $ 35 per unit

                                    = $ 5,250,000

Therefore total sales revenue is $ 5,250,000.

Answer b)

Calculation of number of units of finished goods to be produced

Number of units of finished product to be produced = Number of units sold + desired ending inventory of finished goods – estimated beginning inventory of finished goods

                                                                                                = 150,000 units + 8,000 units – 6,000 units

                                                                                                 = 152,000 units

Therefore the company should produce 152,000 units.

Answer c)

Calculation of dollar amount of material to be purchased

Dollar amount of material to be purchased = Number of units of raw materials to be purchased X Cost per pound of raw material

                                                                                 = 381,500 pounds X $ 2.50 per pound

                                                                                  = $ 953,750

Therefore dollar amount of raw material to be purchased is $ 953,750.

Working Note:

Calculation of number of units of raw material inventory required to be purchased

Number of units of raw materials required to be purchased = Desired ending inventory of raw materials + number of units of Raw material to be used in production – beginning inventory of finished goods

                                                         = 13,500 pounds + (152,000 units X 2.5 pounds per unit) - 12,000 pounds

                                                        = 381,500 pounds

Answer d)

Calculation of direct labor cost to be incurred

Direct labor cost to be incurred = Number of units to be produced X labor hours required per unit X Labor rate per direct labor hour

                                                                = 152,000 units X 0.5 hours per unit X $ 16 per labor hour

                                                                = $ 1,216,000

Therefore direct labor cost to be incurred is $ 1,216,000.

Calculation of total manufacturing overhead cost to be incurred

Total manufacturing overhead cost to be incurred = Estimated Fixed manufacturing overhead cost + Estimated variable manufacturing cost

                                                                                            = $ 45,000 + $ 152,000

                                                                                             = $ 197,000                              

Working Note:

Calculation of variable manufacturing overhead cost to be incurred

Variable manufacturing overhead cost to be incurred = Number of units to be produced X labor hours required per unit X variable manufacturing overhead rate per direct labor hour

                                                                = 152,000 units X 0.5 hours per unit X $ 2 per labor hour

                                                                = $ 152,000

Therefore Variable manufacturing overhead cost to be incurred is $ 152,000.