Question

Scott Logan Equipment produces exercise equipment. The following schedule reveals anticipated monthly production of bicycles for the first three months of the year:

January 8,000

February 11,500

March 15,000

Scott budgets for 1.75 direct labor hours per bicycle, at an average cost of $20.00 per hour. Variable factory overhead is applied at the rate of $8.00 per direct labor hour. Fixed overhead is expected to run $80,000 per month, which includes $8,500 per month of noncash expenses related to depreciation.

Determine the total expected monthly cash outflow for labor and overhead.

Worksheet 5

Estimated monthly cash outflows for direct labor and factory overhead:

	January		February		March
Estimated bicycles produced	9,500		10,000		11,000
Direct labor hours per bicycle	X 1.5		X 1.5		X 1.5
Total estimated labor hours
Cost per direct labor hour
Cost of direct labor
Total estimated labor hours
Variable factory overhead rate
Total variable factory overhead
Fixed factory overhead
Total factory overhead
Less: Depreciation
Cash paid for factory overhead
Cost of direct labor
Cash paid for factory overhead
Expected cash outflow for labor/overhead

Answer 1

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Scott Logan Equipment
Direct Labor and factory overhead	January	February	March	Note
Estimated bicycles produced	9,500.00	10,000.00	11,000.00	A
Direct labor hours per bicycle	1.75	1.75	1.75	B
Total estimated labor hours	16,625.00	17,500.00	19,250.00	C=A*B
Cost per direct labor hour	20.00	20.00	20.00	D
Cost of direct labor	332,500.00	350,000.00	385,000.00	E=C*D
Direct Labor Budget- Finishing	January	February	March
Total estimated labor hours	16,625.00	17,500.00	19,250.00	See A
Variable factory overhead rate	8.00	8.00	8.00	F
Total variable factory overhead	133,000.00	140,000.00	154,000.00	G=A*F
Fixed factory overhead	80,000.00	80,000.00	80,000.00	H
Total factory overhead	213,000.00	220,000.00	234,000.00	I=G+H
Less: Depreciation	8,500.00	8,500.00	8,500.00	J
Cash paid for factory overhead	204,500.00	211,500.00	225,500.00	K=I-J
Cost of direct labor	332,500.00	350,000.00	385,000.00	See E
Cash paid for factory overhead	204,500.00	211,500.00	225,500.00	See K
Expected cash outflow for labor/overhead	537,000.00	561,500.00	610,500.00	L=E+K