Question

EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production:

Direct materials per bag
1.50 yard cotton at $4.50 per yard
0.70 yards canvas finish at $12.50 per yard
Direct labor per bag
1.00 hour at $18.50 per hour
Overhead per bag
Indirect labor	$	1.10
Indirect materials		0.70
Power		0.90
Equipment costs		1.80
Building occupancy		1.40
Total overhead per unit	$	5.90

You learn that equipment costs and building occupancy are fixed and are based on a normal production of 650,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 850,000 units per year.

Labor costs per hour are not expected to change during the year. However, the cotton supplier has informed EcoSacks that it will impose a 20 percent price increase at the start of the coming budget period. No other costs are expected to change.

During the coming budget period, EcoSacks expects to sell 590,000 bags. Finished goods inventory is targeted to increase from the current balance of 170,000 units to 260,000 units to prepare for an expected sales increase the year after next as a result of legislation in several states regarding plastic bags. Production will occur evenly throughout the year. Inventory levels for cotton and canvas are expected to remain unchanged throughout the year. There is no work-in-process inventory.

Required:

a. Prepare a production budget for the coming year.

b. Estimate the materials, labor, and overhead costs for the coming year.

Answer 1

a)

ECO sacks Manufactures
Production Budget
Budgeted Sales	590000
Add: Desired Closing Inventory	260000
Total Quantity Required	850000
Less: Opening Inventory	-170000
Units to be Produced	680000

b)

    Working Note:

           Price of Cotton = 4.50 + (4.50 *20%) = $ 5.4 per yard

           Equipment Costs (Fixed) = 650,000 * 1.80 = 1,170,000

           Building (Fixed) = 650,000 * 1.40 = 910,000

Direct Material Cost	Per Unit Cost	Total Cost (680000)
Cotton ($ 5.40 * 1.50)	8.1	5508000
Canvas ($ 12.50 * 0.70)	8.75	5950000
Total Direct Material Cost		11458000

Direct Labour Cost	Per Unit Cost	Total Cost (680000)
Labor Cost	18.5	12580000

  

Overhead Costs	Per Unit Cost	Total Cost (680000)
Indirect Labour	1.1	748000
Indirect Material	0.7	476000
Power	0.9	612000
Equipment Costs		1170000
Building Costs		910000
Total Overhead Costs		3916000

PLEASE, rate the solutuion if it's helpful to you .....