Question

Background Information: Texas Rex sells t-shirts. Expected sales for each quarter is 1000, 1200, 1500, and 2000 t-shirts at $10.00 each. They anticipate no price change. A production budget tells management how many units must be produced to satisfy anticipated sales and ending inventory needs. Assume the company requires 20% of the next quarter’s sales in ending inventory and that beginning inventory of t-shirts for the first quarter of the year was 180.The Direct Materials Budget tells management how much must be bought to support production and the cost of those purchases. Plain t-shirts cost $3.00 each, and ink (for the screen printing) cost $0.20 per ounce. The factory needs one plain t-shirt and five ounces of ink for each logoed t-shirt that it produces. Texas Rex’s policy is to have 10% of the following quarter’s needs in ending inventory. The factory has 58 plain t-shirts and 390 ounces of ink on hand on January 1. At the end of the year, the desired ending inventory is 106 plain t-shirts and 530 ounces of ink. The Direct Labor Budget shows how many hours are required for production and the total cost of those hours. It takes 0.12 hours to produce one t-shirt. The average wage cost per hour is $10. The overhead budget shows forecasted variable and fixed overhead costs for the coming year. For Texas Rex the variable overhead rate is $5 per direct labor hour. Fixed overhead is budgeted at $1645 per quarter.

Texas Rex, Inc.

Cost of Goods Sold Budget

For the year ending December 31, 2018

                Direct Materials Used

                Direct Labor Used

                Overhead                                         ____________

                Budgeted Manufacturing Costs

                Beginning Finished Goods                ____________

                Cost of Goods Available for Sale

                Less Ending Finished Goods             _____________

            Budgeted Cost of Goods Sold

Answer 1

Solution:

COGS Budget
Purchase costs for 5,720 units produced
Direct material (5720 * $3 + 28,600 oz. * $0.20)	22,880
Direct Labour	6,864
Overhead	10,012
Total Budgeted Manufacturing Costs		39,756
Beginning Inventory		1,251
Goods available for sale		41,007
Less Ending Inventory (calculated above)		-1,390
Estimated COGS		39,617

　

Working:

Direct labor:

	Q1	Q2	Q3	Q4	Total
Units to be produced	1060	1260	1600	1800	5720
Direct Labour Hours per shirt	0.12	0.12	0.12	0.12
Total Direct Labour hours	127.2	151.2	192	216	686.4
Cost per Hours	10	10	10	10
Total Direct Labour Costs	1272	1512	1920	2160	6864

Overhead:

	Q1	Q2	Q3	Q4	Total
Budgeted Direct Labor Hours	127.2	151.2	192	216	686.4
Variable Overhead Rate	5	5	5	5
Budgeted Variable Overhead	636	756	960	1080	3432
Budgeted Fixed Overhead	1645	1645	1645	1645	6580
Total Overhead	2281	2401	2605	2725	10012

Ending Finished Goods Inventory Budget
For the year ending December 31, 2018
Unit Costs
Direct Materials
T-shirt	3.00
ink (5 oz. * $0.20)	1.00
Total Direct Materials		4.00
Direct Labor (0.12 hr. * $10)		1.2
Overhead
Variable (0.12 hr. * 5)	0.6
Fixed (0.12 hr. * 6580/686)	1.1508
Total Overhead		1.75
Total Cost Per Shirt		6.95
Estimated Units in Ending Inventory	200 units
Multiplied with per unit Cost (calculated above)	6.95
Estimated Ending Inventory	1,390