Question

JC Floor Design makes ceramic tiles

December sales were:

500,000 units

Selling price $2 per unit

1,000,000 total sales

The Marketing Department, projects sales to:

increase by 5% in January     

February sales will be 15,000 units less than January

March sales will be 3% higher than February sales

April sales will be the 5,300 units less than march

The price is not expected to increase

JC inventory policy is to maintain an ending inventory equals to 30% of next month sales. Actual inventory is 168,000 units                         

                                                                                   

Clay the material to make the tiles cost $.50 per pound and each tile requires .6 pound. Actual clay inventory is 60,000 pounds and the inventory policy is to maintain an inventory equal to 25% of next month production requirement.

April production is expected to be 525,000 units. The cost of direct materials purchased in December was $150,000                                

                                                                                   

Each tile requires .10 hours and the labor hourly rate is $8.00 per hour       

Variable overhead rate is 20% of labor and fixed overhead is 25,000 monthly

Selling and administrative expenses are expected to be

Administrative salaries	$15,000 per month
Sales salaries	$12,000 per month
Sales commissions	10% of sales

70% of sales are cash sales and the remaining are collected in the next month

Material are paid 60% cash and the remaining the next month

                                               

The company has the following obligations:

100,000 in dividends will be paid in February

A new machine will be acquired in January with a cost of 250,000

A short-term loan with an outstanding balance of $150,000 is used to manage the cash position. Interest on the short-term loan are 1% monthly

Taxes of last quarter were $240,000 and will be paid in March. The company tax rate is 35%. and taxes are paid in the next quarter.

1. Compute the materials to be purchased in March

2. Compute the Direct Materials Cost for January

3. Compute the Labor needed in hours for March

4. Compute Direct Labor Cost for January

Answer 1

	January	February	March
Budgeted unit sales	525,000 (500,000+5%)	510,000 (525,000-15,000)	525,300 (510,000+3%)
Add: Ending finished goods inventory	153,000 (510,000*30%)	157,590 (525,300*30%)	156,000 [(525,300-5,300)*30%]
Less: Beginning finished goods inventory	157,500 (525,000*30%)	153,000	157,590
Budgeted unit production	520,500	514,590	523,710

1.

	March
Budgeted unit production	523,710
Pounds required per unit	0.6
Budgeted material required for production (in pounds)	314,226
Add: Ending raw material inventory (525,000*0.6*25%)	78,750
Less: Beginning raw material inventory (314,226*25%)	78,557
Budgeted material purchases (in pounds)	314,419

Material to be purchased in March = 314,419 pounds

2.

	January
Budgeted unit production	520,500
Pounds required per unit	0.6
Budgeted material required for production (in pounds)	312,300
Add: Ending raw material inventory (514,590*0.6*25%)	77,189
Less: Beginning raw material inventory (312,300*25%)	78,075
Budgeted material purchases (in pounds)	311,414
Cost per pound	$0.50
Budgeted cost of direct material purchase	$155,707

Direct material cost for January = $155,707

3.

	March
Budgeted unit production	523,710
Labor hours required per unit	0.10
Budgeted labor hours required (in hours)	52,371

Labor needed in hours for March = 52,371 hours

4.

	January
Budgeted unit production	520,500
Labor hours required per unit	0.10
Budgeted labor hours required (in hours)	52,050
Cost per labor hour	$8
Budgeted direct labor cost	$416,400

Direct labor cost for January = $416,400