Question

MCO Leather manufactures leather purses. Each purse requires 2 pounds of direct materials at a cost of $4 per pound and 0.7 direct labor hours at a rate of $12 per hour. Variable manufacturing overhead is charged at a rate of $2 per direct labor hour. Fixed manufacturing overhead is $13,000 per month. The company’s policy is to end each month with direct materials inventory equal to 40% of the next month’s materials requirement. At the end of August the company had 2,880 pounds of direct materials in inventory. The company’s production budget reports the following. Production Budget September October November Units to be produced 4,800 7,100 6,400 (1) Prepare direct materials budgets for September and October. (2) Prepare direct labor budgets for September and October. (3) Prepare factory overhead budgets for September and October.

Answer 1

1	Prepare a Direct materials budget for september and october.
	MCO Leather Goods
	Direct Materials Budget
	For the month of September and October
		September	October
	Budgeted Production (units)	4800	7100
	Materials requirements per units (lbs.)	2	2
	Materials needed for production (lbs. )	9600	14200
	Budgeted ending inventory (lbs.)	4260	3840
	Totals materials requirements (lbs. )	13860	18040
	Beginning inventory (lbs. )	2880	4260
	Materials to be purchased lbs.	10980	13780
	Direct material Cost per lb	4	4
	Total budgeted direct materials	43920	55120
2	Prepare a Direct Labor budget for september and october.
	MCO Leather Goods
	Direct Labor Budget
	For the month of september and october
		September	October
	Budgeted Production (units)	4800	7100
	direct labor hours required per unit	0.7	0.7
	Total direct labor hours needed	3360	4970
	Direct labor rate per hour	12	12
	Total budgeted Direct labor	40320	59640
3	Prepare factory overhead budget for september and october.
	MCO Leather Goods
	Factory overhead Budget
	For the month of september and october
		September	October
	Total direct labor hours needed	3360	4970
	VOH rate per DL hour	2	2
	Budgeted variable overhead	6720	9940
	Budgeted fixed overhead	13000	13000
	Total budgeted factory overhead	19720	22940