Question

PA8-4 Preparing Operating Budget Components [LO 8-3a, b, c, d]

Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Each handisaw sells for $30. Wesley expects the following unit sales:

January	2,200
February	2,400
March	2,900
April	2,700
May	2,100

Wesley’s ending finished goods inventory policy is 20 percent of the next month’s sales.
       Suppose each handisaw takes approximately .75 hours to manufacture, and Wesley pays an average labor wage of $20 per hour.
       Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $5.00 each. The company has an ending raw materials inventory policy of 25 percent of the following month’s production requirements. Materials other than the housing unit total $4.50 per handisaw.
       Manufacturing overhead for this product includes $72,000 annual fixed overhead (based on production of 27,000 units) and $1.20 per unit variable manufacturing overhead. Wesley’s selling expenses are 7 percent of sales dollars, and administrative expenses are fixed at $18,000 per month.

Required:
1. Compute the following for the first quarter: (Do not round your intermediate calculations.)

	January February March 1st Quarter total 1. Budgeted Sales Revenue $0 2. Budgeted Production in Units 0 3. Budgeted Cost of Raw Material Purchases for the Plastic Housings $0 4. Budgeted Direct Labor Cost $0

Answer 1

SALES BUDGET
			Jan	Feb	Mar	Q1	April	May
Budgeted Sales units			2,200	2,400	2,900	7,500	2,700	2,100
Selling price per unit			30	30	30	30	30	30
Total Sales			66,000	72,000	87,000	225,000	81,000	63,000
PRODUCTION BUDGET
			Jan	Feb	Mar	Q1	April	May
Budgeted Sales units			2,200	2,400	2,900	7,500	2,700	2,100
Add: Desired Ending Finished inventory			480	580	540	540	420
Total Needs			2,680	2,980	3,440	8,040	3,120
Less: Beginning Finished Inventory			440	480	580	440	540
Required Production in units			2,240	2,500	2,860	7,600	2,580
RAW MATERIAL PURCHASE BUDGET
			Jan	Feb	Mar	Q1	April
Budgeted Production units			2,240	2,500	2,860	7,600	2,580
Raw material required per unit			1	1	1	1	1
Raw material needed			2,240	2,500	2,860	7,600	2,580
Add: Desired Ending Inventory			625	715	645	645
Total needs			2,865	3,215	3,505	8,245
Less: Beginning Inventory			560	625	715	560
Purchase Units			2,305	2,590	2,790	7,685
Cost price per unit			5.00	5.00	5.00	5.00
Budgeted Purchase in $			11,525	12,950	13,950	38,425
LABOUR COST BUDGETS
			Jan	Feb	Mar	Q1
Budgeted Production units			2,240	2,500	2,860	7,600
Labour required per unit			0.75	0.75	0.75	0.75
Labour hours			1680	1875	2145	5700
Labuor Rate per hour			20	20	20	20
Budgeted Labour cost in $			33,600	37,500	42,900	114,000