In: Accounting
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
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 |