Question

3. CENTENNIAL Bikes assembles bicycles by purchasing frames, wheels, and other parts from various suppliers.

Consider the following data:

• The company plans to sell 20,000 bicycles during each month of the year's first quarter.

• A review of the accounting records disclosed a finished-goods inventory of 1,250 bikes on January 1. The company has just adopted a policy to maintain an ending inventory equal to 7.25% of the following month’s budgeted sales

.• CENTENNIAL Bikes has 4,100 wheels in inventory on Jan. 1, a level that is expected to drop by 5% at month-end.

• Assembly time totals 15 minutes per bicycle, and workers are paid $12 per hour.

Required: A. How many bicycles does CENTENNIAL Bikes expect to produce (i.e., assemble) in January? B. How many wheels must be purchased in January to satisfy production needs? C. Compute CENTENNIAL Bikes’ estimated total direct labor cost for the month of January:

Answer 1

1. Estimated bicycke production-

Particulars	units
Expected January sales(a)	20000
Opening stock of finished goods(b)	1250
Estimated closing stock (20000*7.25%) (c)	1450
Expected production (a+c-b)	20200

2. Calculation showing no of wheels required to purchase in January-

Assumption 2 wheels required per bicycle

Particular	Unit
Production requiremnt(20200*2)(a)	40400
Opening stock. (b)	4100
Closing stock(4100*95%)(c)	3895
Purchase requirement (a+c-b)	40195

3.Total direct labour cost-

Particulars	unit
Expected production (in Pcs) ( a)	20200
Assembly tine required (in hrs)(20200*15/60)( b)	5050
Workers hourly rate. (c)	12
Total worker payment (b*c) ( in $)	60,600