Question

The production department of Raredon Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced 25,000 28,000 26,000 21,000 Each unit requires 1.4 direct labour-hours, and direct labour-hour workers are paid $22 per hour. In addition, the variable manufacturing overhead rate is $1.10 per direct labour-hour. The fixed manufacturing overhead is $167,000 per quarter. The only noncash element of manufacturing overhead is depreciation, which is $51,000 per quarter. Required: 1. Prepare the company's direct labour budget for the upcoming fiscal year, assuming that the direct labour workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced. 2.Prepare the company's manufacturing overhead budget.

Answer 1

1.

Direct Labor Budget
	Quarter
	1	2	3	4	Year
Units to be produced (a)	25,000	28,000	26,000	21,000
Direct labor hours per unit (b)	1.40	1.40	1.40	1.40
Total direct labor hours needed (a x b)	35,000.00	39,200.00	36,400.00	29,400.00
Direct labor cost per hour (c )	22	22	22	22
Cost of labor {(axb) x c)	770,000.00	862,400.00	800,800.00	646,800.00	3,080,000.00

2.

Calculation of Manufacturing Overhead Cost
	1	2	3	4	Year
Total direct labor hours needed	35,000.00	39,200.00	36,400.00	29,400.00
Variable manufacturing overhead rate	1.10	1.10	1.10	1.10
Total Variable manufacturing overhead (Total direct labor hours needed x Variable manufacturing overhead rate)	38,500.00	43,120.00	40,040.00	32,340.00
Total fixed manufacturing overhead	167,000.00	167,000.00	167,000.00	167,000.00
Total estimated manufacturing overhead (Total Variable manufacturing overhead + Total fixed manufacturing overhead)	205,500.00	210,120.00	207,040.00	199,340.00	822,000.00

Calculation of Cash Disbursement or Manufacturing overhead
	1	2	3	4	Year
Total estimated manufacturing overhead	205,500.00	210,120.00	207,040.00	199,340.00
Depreciation expense	(51,000.00)	(51,000.00)	(51,000.00)	(51,000.00)
Cash disbursement (Total estimated manufacturing overhead-Depreciation expense)	154,500.00	159,120.00	156,040.00	148,340.00	618,000.00