Question

The Eastern Technology Company manufactures Weather Radios for sale to retailers such as Wal-Mart, Target, etc.

The 2016 quarterly unit sales estimates and projected sales prices per unit areas follows:

	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Sales units	9,200	9,300	9,500	9,400
Price per unit	$90	$90	$90	$90

Also, note that that projected sales (and projected production) for Quarter 1 of 2017 is 10,000 units.

Product Cost Assumptions

The company’s product requires two raw materials, resistors and switches. Cost parameters are as follows:

Number of Components/Unit
Switches @ $4/switch	3
Resistors @ $8/switch	2

Number of minutes required to complete finished unit
Direct labor minutes per unit	30
Machine minutes per unit	12

Hour rates used

Direct labor rate= $10/hour

Manufacturing overhead rates (i.e., the POHRs to use to apply overhead)

Labor-related= $25/hour

Machine-related= $40/hour

Eastern applies manufacturing overhead using two cost drivers: direct-labor hours and machine hours.

Ending Inventories

The desired ending inventories for each of the two direct materials is 10% of the next quarter’s respective amount of direct materials needed for production. The desired finished goods ending inventory is 5% of the next quarter’s budgeted sales units. Beginning inventory for direct materials and finished goods are assumed to be zero as of 1/1/2016.

Prepare the Following Budgets:

Sales Budget

Production Budget

Direct Materials Purchases Budget

Direct Labor Budget

Manufacturing Overhead Budget

Answer 1

Eastern Technology Company
Sales Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Sales (in Units)	9,200	9,300	9,500	9,400	37,400
Selling Price p.u,	$      90	$       90	$       90	$      90
Total Sales	$        828,000	$            837,000	$        855,000	$      846,000	$    3,366,000

Eastern Technology Company
Production Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Quarter 1 (2017)	Total (2016)
Sales (in Units)	9,200	9,300	9,500	9,400	10,000	37,400
Add: Closing Stock	465	475	470	500	-
Total no. of units required to be produced	9,665	9,775	9,970	9,900	10,000
Less: Opening inventory of finished goods	-	(465)	(475)	(470)	(500)
Budgeted Production	9,665	9,310	9,495	9,430	9,500	47,400

Eastern Technology Company
Raw Material Purchase Budget
	Quarter 1		Quarter 2		Quarter 3		Quarter 4		Quarter 1 (2017)
	Switches	Resistors	Switches	Resistors	Switches	Resistors	Switches	Resistors	Switches	Resistors
Budgeted Production	9,665	9,665	9,310	9,310	9,495	9,495	9,430	9,430	9,500	9,500
Components per Unit	3	2	3	2	3	2	3	2	3	2
Total Units required for production	28,995	19,330	27,930	18,620	28,485	18,990	28,290	18,860	28,500	19,000
Add: Budgeted Closing Stock	2,793	1,862	2,849	1,899	2,829	1,886	2,850	1,900	-	-
Total units required to be acquired	31,788	21,192	30,779	20,519	31,314	20,876	31,140	20,760
Less: Opening inventory of components	-	(2,793)	(1,862)	(2,849)	(1,899)	(2,829)	(2,829)	(1,886)
Total Budgeted Purchase of Raw Materials	31,788	18,399	28,917	17,671	29,415	18,047	28,311	18,874
Price per Component	$        4	$       8	$        4	$        8	$      4	$       8	$       4	$      8
Total Purchase Cost	$        127,152	$            147,192	$        115,666	$      141,364	$        117,660	$        144,376	$        113,244	$        150,992

Eastern Technology Company
Direct Labor Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total (2016)
Direct Labour hours required p.u,	0.50	0.50	0.50	0.50
Budgeted Production	9,665	9,310	9,495	9,430
Budgeted Labour hours	4,833	4,655	4,748	4,715	18,950
Budgeted rate per hour	$    10	$     10	$    10	$   10	$   10
Total Budgeted Direct Labor cost	$ 48,325	$ 46,550	$ 47,475	$ 47,150	$ 189,500

Eastern Technology Company
Overheads Budget
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total (2016)
Machine hour required p.u,	0.20	0.20	0.20	0.20	0.2
Total Budgeted Production	9,665	9,310	9,495	9,430	37,900
Budgeted Machine hours required	1,933	1,862	1,899	1,886	7,580
Budgeted manchine hour rate	$      40	$      40	$     40	$      40	$     40
Budgeted Production OH - Machine related	$    77,320	$      74,480	$     75,960	$    75,440	$        303,200
Budgeted Labor hours	4,833	4,655	4,748	4,715	18,950
Budgeted labor hour rate of OH	$      25	$     25	$     25	$      25	$       25
Budgeted Production OH - Labor related	$      120,813	$            116,375	$ 118,688	$      117,875	$        473,750
Total Budgeted Production OH	$      198,133	$            190,855	$ 194,648	$      193,315	$        776,950

Notes:

The Direct Labor hours required per unit => 30 minutes / 60 minutes = 0.50 hours
The Machine hours required per unit => 12 minutes / 60 minutes 0.20 hours

Owing to absence of sufficient information, it is assumed that closing inventory of quarter 1 in 2017 as "nil"