Question

Horngren's Accounting Eleventh Edition

Refer to the budgets prepared in E22-25. Determine the cost per kit to manufacture the toys. Gordon projects sales to 5800, 5600, 5700, 5400 for the next four quarters. Prepare a cost of goods sold budget for the year. Gordon has 2,000 kits in beginning inventory at a cost of $200,000.

FROM E22-25

Gordon, Inc. makes toys and projects production to be 6100, 5900, 6000, and 5500 for the next four quarters. Direct materials are $8 per kit. Beginning Raw Material Inventory is $20,000 and the company desires to end each quarter with 25% of the material needed for the next two quarter's production. Direct Materials needed for production in the First Quarter of the following year is $45,000. Gordon desires a balance of $25,000 in Raw Materials Inventory at the end of the fourth quarter. Each kit requires 1.3 hours of direct labor at an average cost of $30 per hour. Each kit requires 1.25 machine hours. Manufacturing overhead is allocated using machine hours as the allocation base. Variable overhead is $50 per kit and fixed overhead is $30,000 in the first two quarters and $32,000 in the third and fourth quarter.

	Prepare a cost of goods sold budget for the year. Gordon has no kits in beginning inventory. Round amounts to two decimal places.
Solution:
	First calculate the total projected manufacturing cost per kit
	GORDON, INC.
	Cost of Goods Sold Budget
	For the Year Ended December 31
					First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total

Answer 1

Computation of Manufacturing Overhead Budget
	Q-1	Q-2	Q-3	Q-4	Total
Estiamted Production	6100	5900	6000	5500	23500
Variable Overhead Cost per Unit	$50	$50	$50	$50	$50
Budgeted Variable Overhead (a)	$3,05,000	$2,95,000	$3,00,000	$2,75,000	$11,75,000
Budgeted Fixed Overhead (b)	$30,000	$30,000	$32,000	$32,000	$1,24,000
Budgeted Manufacturing OH Cost (a+b)	$3,35,000	$3,25,000	$3,32,000	$3,07,000	$12,99,000
No. of Machine Hours used ( Qty* 1.25)					29375
Predetermined OH					$44

Computation of Manufacturing Cost
Direct Material Cost Per Unit	$8
Direct Labour Cost Per Unit (1.3 hourX $30)	$39
Manufacturing Overhead Per Unit ($44.22X 1.25)	$55
Total Manufacturing Cost	$102

Gordan Inc.
Cost of Goods Sold Budget
For the year Dec 31
	Q-1	Q-2	Q-3	Q-4	Total
Unit Sold	5800	5600	5700	5400	22500
Manufacturing Cost/Unit	$102	$102	$102	$102	$102
Total Cost of Goods Sold	$5,91,600	$5,71,200	$5,81,400	$5,50,800	$22,95,000