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 $50. Wesley expects the following unit sales:

January	4,200
February	4,400
March	4,900
April	4,700
May	4,100

Wesley’s ending finished goods inventory policy is 30 percent of the next month’s sales.
       Suppose each handisaw takes approximately .60 hours to manufacture, and Wesley pays an average labor wage of $26 per hour.
       Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $8.00 each. The company has an ending raw materials inventory policy of 30 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
2.	Budgeted Productoin in Units
3.	Budgeted Cost of Raw Material Purchases for the Plastic Housings
4.	Budgeted Direct Labor Cost

Answer 1

SALES BUDGET
			Jan	Feb	Mar	Q1	April	May
Budgeted Sales units			4,200	4,400	4,900	13,500	4,700	4,100
Selling price per unit			50	50	50	50	50	50
Total Sales			210,000	220,000	245,000	675,000	235,000	205,000
PRODUCTION BUDGET
			Jan	Feb	Mar	Q1	April	May
Budgeted Sales units			4,200	4,400	4,900	13,500	4,700	4,100
Add: Desired Ending Finished inventory			1,320	1,470	1,410	1,410	1,230
Total Needs			5,520	5,870	6,310	14,910	5,930
Less: Beginning Finished Inventory			1,260	1,320	1,470	1,260	1,410
Required Production in units			4,260	4,550	4,840	13,650	4,520
RAW MATERIAL PURCHASE BUDGET
			Jan	Feb	Mar	Q1	April
Budgeted Production units			4,260	4,550	4,840	13,650	4,520
Raw material required per unit			1	1	1	1	1
Raw material needed			4,260	4,550	4,840	13,650	4,520
Add: Desired Ending Inventory			1,365	1,452	1,356	1,356
Total needs			5,625	6,002	6,196	15,006
Less: Beginning Inventory			1,278	1,365	1,452	1,278
Purchase Units			4,347	4,637	4,744	13,728
Cost price per unit			8.00	8.00	8.00	8.00
Budgeted Purchase in $			34,776	37,096	37,952	109,824
LABOUR COST BUDGETS
			Jan	Feb	Mar	Q1
Budgeted Production units			4,260	4,550	4,840	13,650
Labour required per unit			0.6	0.6	0.6	0.6
Labour hours			2556	2730	2904	8190
Labuor Rate per hour			26	26	26	26
Budgeted Labour cost in $			66,456	70,980	75,504	212,940