Question

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2017. January February March April May Estimated unit sales 10,700 11,000 9,000 8,700 8,900 Sales price per unit $50.60 $47.90 $47.90 $47.90 $47.90 Direct labor hours per unit 2.1 2.1 1.5 1.5 1.5 Wage per direct labor hour $7.00 $7.00 $7.00 $8.00 $8.00 Lowell has a labor contract that calls for a wage increase to $8.00 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1. Lowell expects to begin the year with 18,400 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 70% of the second following month’s sales. Prepare a production budget for Lowell Company by month and for the first quarter of the year. LOWELL COMPANY Production Budget Jan Feb Mar Total : : Prepare a direct labor budget for Lowell Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours. (Round Direct labor hours per unit answers to 1 decimal place, e.g. 52.7.) LOWELL COMPANY Direct Labor Budget Jan Feb Mar Total $ $ $ $ $ $ $

Answer 1

LOWELL COMPANY
Production Budget
	Jan	Feb	Mar	Total
Following month's sales (units)	11000	9000	8700
Ratio of inventory to following month's sales	100%	100%	100%
Desired ending inventory (units)	11000	9000	8700
Second following month's sales (units)	9000	8700	8900
Ratio of inventory to second following month's sales	70%	70%	70%
Desired ending inventory (units)	6300	6090	6230
Total desired ending inventory (units)	17300	15090	14930	14930
Add: Estimated unit sales for the month	10700	11000	9000	30700
Required units of production	28000	26090	23930	45630
Less: Beginning inventory (units)	18400	17300	15090	18400
Units to be produced	9600	8790	8840	27230

LOWELL COMPANY
Direct Labor Budget
	Jan	Feb	Mar	Total
Budgeted production (units)	9600	8790	8840	27230
Direct labor hours per unit	2.1	2.1	1.5
Total direct labor hours required	20160	18459	13260	51879
Wage per direct labor hour $	7.00	7.00	7.00	7.00
Total direct labor cost $	141120	129213	92820	363153

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