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MCO Leather manufactures leather purses. Each purse requires 2 pounds of direct materials at a cost...

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.

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Expert Solution

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

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