Question

Part One: 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 Gordon's direct materials budget, direct labor budget, and manufacturing overhead budget for the year. Round the direct labor hours needed for production, budgeted overhead costs, and predetermined overhead allocation rate to two decimal places. Round other amounts to the nearest whole number.
Solution:
	GORDON, INC.
	Direct Materials Budget
	For the Year Ended December 31
					First	Second	Third	Fourth
					Quarter	Quarter	Quarter	Quarter	Total
	Budgeted kits to be produced
	Direct Materials Cost per Kit
	Direct Materials Cost Needed for Production
	Desired Ending Inventory
	Total Direct Materials Needed
	Less DM in Beginning Inventory
	Budgeted Purchases of Direct Materials

Answer 1

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Direct Material Budget
			Q1	Q2	Q3	Q4	Total	Q1
	Budgeted kits to be produced		6100	5900	6000	5500	23500
	Direct Material cost per kit		$               8	$               8	$               8	$               8	$                 8
	Direct Material cost needed for production		$    48,800	$    47,200	$    48,000	$    44,000	$    188,000	$ 45,000
	Add: Desired Ending Inventory	25% of Next Two Q	$    23,800	$    23,000	$    22,250	$    25,000	$      25,000
	Total Direct Material needed		$    72,600	$    70,200	$    70,250	$    69,000	$    213,000
	Less: Beginning Inventory		$ -20,000	$ -23,800	$ -23,000	$ -22,250	$     -20,000
	Budgeted Purchase of Direct Material		$    52,600	$    46,400	$    47,250	$    46,750	$    193,000
Direct Labor Budget
			Q1	Q2	Q3	Q4	Total
	Budgeted kits to be produced		6100	5900	6000	5500	23500
	Direct Labor required per Kit		1.30	1.30	1.30	1.30	1.30
	Total Labor Hours Required for production		7,930	7,670	7,800	7,150	30,550
	Per Hour Cost		$            30	$            30	$            30	$            30	$               30
	Budgeted Labor Cost		$ 237,900	$ 230,100	$ 234,000	$ 214,500	$    916,500
Manufacturing overhead Budget
			Q1	Q2	Q3	Q4	Total
	Variable Overhead	$ 50 per Kit	$ 305,000	$ 295,000	$ 300,000	$ 275,000	$1,175,000
	Fixed Overhead		$    30,000	$    30,000	$    32,000	$    32,000	$    124,000
	Total Budgeted Manufacturing overheads	a	$ 335,000	$ 325,000	$ 332,000	$ 307,000	$1,299,000
	Machine Hours (b)	1.25*Production					$      29,375
	Predetermined Overhead Rate	a/b					$         44.22	per MH