Question

Bakersfield Company makes and sells glare filters for microcomputer monitors. Steve Smith, the controller, is responsible for preparing Bakersfield’s master budget and assembled the following data for the upcoming year. The direct materials cost per unit was $18 in December of the current year. Labor saving machinery will be operational by March of the upcoming year. Also, as of March 1, the company plans to increase its direct labor rate. Direct labor for Bakersfield is considered variable because the company can call in its workers when needed and send them home when not needed. Bakersfield expects to have 5,600 filters in inventory on December 31 of the current year, and has a policy of carrying 35 percent of the following month’s projected sales in inventory. Information for the first four months of the upcoming year is as follows:

	January	February	March	April
Estimated unit sales	36,000	34,500	39,000	38,600
Sales price per unit	$160	$160	$150	$150
Direct labor hours per unit	3.0	3.0	2.5	2.5
Direct labor rate per hour	$36	$36	$40	$40
Direct materials cost per unit	$18	$18	$18	$18

Requirements:

Prepare the following budgets for Bakersfield Company for each month in the first quarter (January through March) and for the entire first quarter of the upcoming year. Show supporting calculations.

Production budget

Direct labor cost budget

Direct materials usage budget in dollars

Sales revenue budget

Calculate the total budgeted contribution margin for Bakersfield by month (months of January through March) and in total for the first quarter of the upcoming year. Show supporting computations.

Answer 1

Production Budget :-

	January	February	March	Quarter
Estimated unit sales	36,000	34,500	39,000	109500
Add:-Ending Inventory	(34500 * 35%) =12075	(39000 * 35%) =13650	(38600 * 35%) =13510
Less:- Beginning Inventory	5600	12075	13650
Units to be Produced	42475	36075	38860	117410

Direct Labour Cost Budget :-

	January	February	March	Quarter
Units to be Produced	42475	36075	38860	117410
Direct labor hours per unit	3.0	3.0	2.5
Total hours required (A)	127425	108225	97150	332800
Direct labor rate per hour ($) (B)	36	36	40
Direct Labour Cost Budget (A * B)	4587300	3896100	3886000	12369400

Direct materials usage budget in dollars:-

	January	February	March	Quarter
Units to be Produced	42475	36075	38860	117410
Raw Material required	42475	36075	38860	117410
Cost pu	18	18	18	18
Direct materials usage budget in dollars	764550	649350	699480	2113380

Sales revenue budget :-

	January	February	March	Quarter
Estimated unit sales	36,000	34,500	39,000	109500
Sales price per unit	$160	$160	$150
Sales revenue budget	5760000	5520000	5850000	17130000

Contribution Budget :-

	January	February	March	Quarter
Sales revenue budget	5760000	5520000	5850000	17130000
(-) Direct Material	(36000 * 18) =648000	(34500 * 18) =621000	(39000 * 18) =702000	1971000
(-) Direct Labour	(36 * 3 * 36000) =3888000	(36 * 3 * 34500) =3726000	(40 * 2.5 * 39000) =3900000	11514000
Contribution Margin	1224000	1173000	1248000	3645000