Question

Black Diamond Company produces snow skis. Each ski requires 2 pounds of carbon fiber. The company’s management predicts that 6,200 skis and 7,200 pounds of carbon fiber will be in inventory on June 30 of the current year and that 162,000 skis will be sold during the next (third) quarter. A set of two skis sells for $420. Management wants to end the third quarter with 4,700 skis and 5,200 pounds of carbon fiber in inventory. Carbon fiber can be purchased for $11 per pound. Each ski requires 0.5 hours of direct labor at $16 per hour. Variable overhead is applied at the rate of $6 per direct labor hour. The company budgets fixed overhead of $1,794,000 for the quarter.

A. Prepare the third-quarter production budget for skis.

B. Prepare the third-quarter direct materials (carbon fiber) budget; include the dollar cost of purchases.

C. Prepare the direct labor budget for the third quarter.

D. Prepare the factory overhead budget for the third quarter.

Answer 1

Solution :

(A) Production Budget :

(a) Estimated Units to be Sold	162,000
(b) Inventory Required at the end	4,700
(c) Required Units of Available Production(a + b)	166,700
(d) Opening Inventory of Skis	6,200
(e) Units to be Manufactured (c -d)	160,500

(B) Direct Material Budget :

(a) Units to be Manufactured of Skis	160,500
(b) Direct Material Required per Units of Skis	2
(c) Total Direct Material Needed in Production( a * b)	321,000
(d) Ending Balance required of Direct Material	5,200
(e) Total Material Required( c + d)	326,200
(f) Opening Balance of Direct Material	7,200
(g) Direct Material to be Purchased(e-f)	319,000
(h) Cost per Unit of Direct Material	$ 11
(i) Budgeted Cost of Direct Material Purchases (g * h)	$ 3,509,000

(C) Direct Labor Budget :

(a) Units to be Manufactured	160,500
(b) Labor Hour Required per Unit	0.50
(c) Total Labor Needed (a * b)	80,250
(d) Direct Labor Hour Cost per Hour	$ 16
(e) Budgeted Labor Hour Cost (c * d)	$ 1,284,000

(D) Factory Overhead Budget :

(a) Total Labor Needed	80,250
(b) Variable Overhead Rate per Hour	$ 6
(c) Budgeted Variable Overhead Cost (a * b)	$ 481,500
(d) Fixed Overhead	$ 1,794,000
(e) Total Factory Overhead (c + d)	$ 2,275,500

Please vote up and write your doubts in comment section. Would be glad to help you further.