Question

CURRENT DESIGNS

Diane Buswell is preparing the 2019 budget for one of Current Designs' kayaks. Extensive meetings with members of the sales department and executive team have resulted in the following unit sales projections for 2019.

Quarter 1	1,000 kayaks
Quarter 2	1,500 kayaks
Quarter 3	750 kayaks
Quarter 4	750 kayaks

Current Designs' policy is to have finished goods ending inventory in a quarter equal to 20% of the next quarter's anticipated sales. Preliminary sales projections for 2020 are 1,100 units for the first quarter and 1,500 units for the second quarter. Ending inventory of finished goods at December 31, 2018, will be 200 kayaks.

Production of each kayak requires 54 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). Company policy is that the ending inventory of polyethylene powder should be 25% of the amount needed for production in the next quarter. Assume that the ending inventory of polyethylene powder on December 31, 2018, is 19,400 pounds. The finishing kits can be assembled as they are needed. As a result, Current Designs does not maintain a significant inventory of the finishing kits.

The polyethylene powder used in these kayaks costs $1.50 per pound, and the finishing kits cost $170 each. Production of a single kayak requires 2 hours of time by more experienced, type I employees and 3 hours of finishing time by type II employees. The type I employees are paid $15 per hour, and the type II employees are paid $12 per hour.

Selling and administrative expenses for this line are expected to be $45 per unit sold plus $7,500 per quarter. Manufacturing overhead is assigned at 150% of labor costs.

Instructions:Prepare the following:

1. direct materials budget
2. direct labor budget
3. manufacturing overhead budget
4. selling and administrative budget for this product line by quarter and in total for 2019.

Answer 1

PRODUCTION BUDGET
			Q1	Q2	Q3	Q4	Year	Q1	Q2
Budgeted Sales Units		11,000	21,500	3,750	4,750	41,000	1,100	1,500
Add: Desired Ending Finished inventory	4,300	750	950	220	220	300
Total Needs		15,300	22,250	4,700	4,970	41,220	1,400
Less: Beginning Finished Inventory	200	4,300	750	950	200	220
Required Production in units	15,100	17,950	3,950	4,020	41,020	1,180
RAW MATERIAL PURCHASE BUDGET
			Q1	Q2	Q3	Q4	Year	Q1
Budgeted Production units	15,100	17,950	3,950	4,020	41,020	1,180
RM required per unit		54	54	54	54	54	54
Total RM requiremnt		8,15,400	9,69,300	2,13,300	2,17,080	22,15,080	63,720
Add: Desired Ending Inventory	2,42,325	53,325	54,270	15,930	15,930
Total needs		10,57,725	10,22,625	2,67,570	2,33,010	22,31,010
Less: Beginning Inventory	19,400	2,42,325	53,325	54,270	19,400
Purchase Units		10,38,325	7,80,300	2,14,245	1,78,740	22,11,610
Cost price per unit		1.50	1.50	1.50	1.50	1.50
Cost of Polythene Powder	15,57,488	11,70,450	3,21,368	2,68,110	33,17,415
Cost of Finishing Kits		2567000	3051500	671500	683400	6973400
(Units produced @170)
Total Direct material cost	41,24,488	42,21,950	9,92,868	9,51,510	########
Direct Labor Budget
			Q1	Q2	Q3	Q4	Year
Budgeted Production units	15,100	17,950	3,950	4,020	41,020
DLH of Skilled labor required per unit	2	2	2	2	2
TOTAL Skilled DLH required	30200	35900	7900	8040	82040
Multiply: Rate per DLH	15	15	15	15	15
Total Labor cost of Skilled	453000	538500	118500	120600	1230600
LessSkilled Labor
Budgeted Production units	15,100	17,950	3,950	4,020	41,020
DLH of Less Skilled labor required per unit	3	3	3	3	3
TOTAL Less Skilled DLH required	45300	53850	11850	12060	123060
Multiply: Rate per DLH	12	12	12	12	12
Total Labor cost of Less Skilled	543600	646200	142200	144720	1476720
Total Direct labor cost			996600	1184700	260700	265320	2707320
Manufacturing OH Budget
			Q1	Q2	Q3	Q4	Year
Direct labor cost		996600	1184700	260700	265320	2707320
Multiply: OH rate		150%	150%	150%	150%	150%
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