Question

-6. Nothing But Love, Ltd. is a manufacturer that makes one product. It provided the following information to help prepare the master budget for the upcoming month:

• The budgeted selling price per unit is $45. Budgeted unit sales for the month is 35,000 units.
• Each unit of finished goods requires 3 pounds of raw materials. The raw materials cost $2.00 per pound.
• The direct labor wage rate is $8.00 per hour. Each unit of finished goods requires 1.5 direct labor-hours.
• Manufacturing overhead is entirely variable and is $2.00 per direct labor-hour.
• The variable selling and administrative expense per unit sold is $1.20. The fixed selling and administrative expense per month is $23,500.

The estimated net operating income (loss) for the month is closest to:

	a.	$735,000
	b.	$840,000
	c.	$798,000
	d.	$774,500
	e.	$1,575,000

-4.How Hard The Day, Inc. makes a product that has the following direct labor standards:

Standard direct labor-hours		1.2	hours per unit
Standard direct labor rate	$	12.00	per hour

The company budgeted for production of 5,400 units in January, but actual production was 5,500 units. The company used 6,800 direct labor-hours to produce this output. The actual total direct labor cost was $80,920.

The direct labor rate variance for January is:

	a.	$680 U
	b.	$1,720 F
	c.	None of the answers provided are correct
	d.	$1,720 U
	e.	$680 F

7.It’s Hot, Inc. makes one product and it provided the following information to help prepare the master budget for the next six months of operations:

• Budgeted unit sales for the next six months are as follows: January = 80,200 units; February = 81,400 units; March = 80,900 units; April = 82,300 units; May = 85,400 units; and, June = 84,000 units. The budgeted selling price per unit is $30.   All sales are on account.
• Regarding sales on account, 40% are collected in the month of sale and 60% are collected in the following month.
• The ending finished goods inventory equals 25% of the following month's sales.
• The ending raw materials inventory equals 40% of the following month’s raw materials production needs.
• Each unit of finished goods requires 4 kilograms of raw materials. The raw materials cost $7.00 per kilogram.
• The direct labor wage rate is $10.00 per hour. Each unit of finished goods requires 1.4 direct labor-hours.
• Manufacturing overhead is entirely variable and is $4.60 per direct labor-hour.

The budgeted direct labor cost for March is:

	a.	$1,146,320
	b.	$1,137,500
	c.	$1,127,700
	d.	$1,132,600
	e.	$1,140,440

Answer 1

Answer-6)- The estimated net operating income (loss) for the month is closest to = $774500.

Explanation-

NOTHING BUT LOVE LTD.
NET OPERTAING INCOME
PARTICULARS		AMOUNT
		$
Sales	35000 units*$45 per unit	1575000
Less- Variable costs
Raw materials	(35000 units*3 pounds per unit)*$2.00 per pound	210000
Direct labor	(35000 units*1.5 hours per unit)*$8.00 per hour	420000
Manufacturing overhead	(35000 units*1.5 hours per unit)*$2.00 per hour	105000
Selling & administrative expense	35000 units*$1.20 per unit	42000
Total variable costs		777000
Contribution margin		798000
Less- Fixed costs
Selling & administrative expense		23500
Net operating income		774500

Answer-4)- The direct labor rate variance for January is = $680 F

Explanation- Direct Labor rate variance = (Standard rate – Actual rate) * Actual hours

= {($12.00 per hour – ($80920/6800 hours)}* 6800 hours   

= ($12.00 per hour - $11.90 per hour)*6800 hours

= $680 Favorable

Answer-7)- The budgeted direct labor cost for March is = $1132600.

Explanation- Budgeted direct labor cost for March = 80900 units*1.4 hours per unit*$10.00 per hour

= $1132600.