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In: Accounting

13-51) EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year...

13-51)

EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production:

Direct materials per bag
2.20 yard cotton at $3.20 per yard
1.10 yards canvas finish at $11.80 per yard
Direct labor per bag
0.60 hour at $18.00 per hour
Overhead per bag
Indirect labor $ 0.70
Indirect materials 1.40
Power 1.60
Equipment costs 2.50
Building occupancy 2.10
Total overhead per unit $ 8.30

You learn that equipment costs and building occupancy are fixed and are based on a normal production of 580,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 695,000 units per year.

Labor costs per hour are not expected to change during the year. However, the cotton supplier has informed EcoSacks that it will impose a 20 percent price increase at the start of the coming budget period. No other costs are expected to change.

During the coming budget period, EcoSacks expects to sell 520,000 bags. Finished goods inventory is targeted to increase from the current balance of 120,000 units to 175,000 units to prepare for an expected sales increase the year after next as a result of legislation in several states regarding plastic bags. Production will occur evenly throughout the year. Inventory levels for cotton and canvas are expected to remain unchanged throughout the year. There is no work-in-process inventory.

Required:

a. Prepare a production budget for the coming year.

b. Estimate the materials, labor, and overhead costs for the coming year.

Solutions

Expert Solution

The following are the answers.Please rate this .Thanks.

Requirement
a Production Budget
Production
Sales 520000
Add Ending Inventory 175000
Less Beginning Inventory 120000
575000
Working
Cotton Increase 3.2 *20% Canvas $11.80
$3.84 per yard (1.1 yard canvas per bag)
per yard (2.2 yard canvas per bag)
Direct Labour $18.00
per hr (.60 hr used per bag)
Cost Per Unit Total Cost
Equipment 2.5 $1,450,000 Cost per unit*normal production
Building 2.1 $1,218,000 Cost per unit*normal production
Materials ,Labour and Overhead Costs for the coming Year
Units to be produced 575000
Direct Materials
Cotton $4,857,600 units * 2.2 * Cost
canvas $7,463,500 units *1.1 * Cost
Total Direct Material $12,321,100
Direct Labour $6,210,000 units * .60 * cost
Overhead
Indirect Labour $402,500 units * cost
Indirect Material $805,000 units * cost
Power $920,000 units * cost
Equipment Cost $1,450,000 Fixed Cost
Buiding Occupancy $1,218,000 Fixed Cost
Total OH $4795500
Total Budget Cost $23326600
Cost Per Unit $40.568

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