Question

In: Accounting

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.


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

Solutions

Expert Solution

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


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