Question

Claire Inc. predicts sales of 4,000 frames in May & 14,000 units in June.

Target end of month finished-goods inventory is 10% of next month’s sales.

The company wants RM ending inventory to cover 20% of next month’s needs.

The frames each require 2 pieces of trim to manufacture and each trim costs $3 per piece. The frames also require three hours of labor. The direct labor rate is $10 per hour.

1.) If June’s budgeted production = 6,000 frames. What is the desired inventory of Raw Materials (trim not frames) at the end of May?

2.) What was the beginning raw materials inventory for May (trim not frames)?

3.) Prepare a May materials usage budget for Claire Inc. if June’s budgeted production = 6,000 frames. How many pieces of trim must be purchased in May?

4.) Prepare a May materials usage budget for Claire Inc. if June’s budgeted production = 6,000 frames. What is the total budgeted Raw Materials Cost for May? Give your answer in dollars as a positive number but do not use the $ sign.

5.) Prepare a direct labor budget in hours and dollars for May.  What is the total budgeted direct labor cost for May for Claire Inc.?  Give your answer as a positive number (no sign).

Answer 1

	May
Budgeted sales	4,000
Add: Desired ending inventory	1,400(14,000*10%)
Less: Beginning inventory	400 (4,000*10%)
Budgeted production	5,000

1. Desired ending inventory of raw material for May = 6,000*2*20% = 2,400

2. Beginning raw material inventory for May = 5,000*2*20% = 2,000

3.

	May
Budgeted production	5,000
Raw material required per unit	2
Raw material needed (In trims)	10,000
Add: Desired ending raw material inventory	2,400
Less: Beginning raw material inventory	2,000
Budgeted raw material purchases	10,400

Budgeted pieces of trims to be purchased in May = 10,400

4.

	May
Budgeted production	5,000
Raw material required per unit	2
Raw material needed (In trims)	10,000
Add: Desired ending raw material inventory	2,400
Less: Beginning raw material inventory	2,000
Budgeted raw material purchases	10,400
Cost per trim	$3
Budgeted cost of raw material purchases	$31,200

Budgeted raw material cost for May = $31,200

5.

	May
Budgeted production	5,000
Direct labor hours required per unit	3
Total direct labor hours needed	15,000
Direct labor rate per hour	$10
Budgeted direct labor cost	$150,000