Question

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.

Answer 1

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