Question

Redford Corporation

Manufacturing Budget

Redford Corporation, a maker of high-strength umbrellas, is preparing a preliminary manufacturing budget for the year 2019

They have gathered the following estimate data from various teams:

Production units	400,000
Materials - metal rods/clasps	$           0.40	per unit, before wastage
Materials - high-strength fabric	$           1.20	Per sq. yard
Materials - Resin handles	$           0.25	per unit
Direct Labor - Cutting and Assembly Line	$         28.00	Per hour
Packing & Inspection Costs (variable)	$       300.00	Per batch
Factory fixed costs	$    300,000	Per Year

Additional information given:

Roughly 5% of metal parts are damaged or defective and are discarded as wastage

Each umbrella uses 1.5 sq. yards of high-strength fabric

Roughly 10% of the initial fabric quantity is not usable in the umbrellas due to the cutting process, but 20% of the value of this fabric is recovered by selling the unused pieces to a dealer

The current process uses roughly 20 hours of direct labor (cutting and assembly line) per batch of umbrellas

Each batch has 200 umbrellas

Q1. Prepare a Manufacturing Cost Budget for 2019 by quarter, assuming flat activity and equal-length quarters (do not adjust for days)

Q2. Prepare a High Case budget alternative assuming that production ramps up 50% in the second half.

       In this scenario, assume fixed costs increase by $60,000/yr due to need for additional storage space, while variable cost structure is unchanged

Answer 1

Q1. Prepare a Manufacturing Cost Budget for 2019 by quarter, assuming flat activity and equal-length quarters (do not adjust for days)- Solution
Particular	Q1	Q2	Q3	Q4	Total
Production unit	100000	100000	100000	100000	400000
Material Metal Rod
Matel Rod Requirment per Quater=> 100000*100/95= 105263.16 (App) i.e 105264	42105.60	42105.60	42105.60	42105.60	168422.40
Since material rods are in parts so we have considered .16 as 1 part        (105264*0.4=42105.60)
Material High strength fabric (per umbrella requires 1.5 yard fabric)	200,000.00	200,000.00	200,000.00	200,000.00	800,000.00
Hence Requirment for 100000 units = 100000*1.5= 150000 sq yard       (166666.67*1.2=200000)
Requirment of Fabric before loss in cutting =150000*100/90=166666.67
Amount reliased form sale of Scrape	(4,000.00)	(4,000.00)	(4,000.00)	(4,000.00)	-16000
(166666.67-150000)*0.24=4000 (Since Revenue hence shown in Negative)
Material Resin Handle    (100000*0.25=25000)	25000	25000	25000	25000	100000
Direct Labour Cutting and Assembly (500*20*28=280000)	280000	280000	280000	280000	1120000
No batch per quater =100000/200=500					0
					0
Packing and inspection (300*500=150000)	150000	150000	150000	150000	600000
					0
Fixed Cost per quarter 300000/4=75000	75000	75000	75000	75000	300000
					0
Total Cost of Production	768105.60	768105.60	768105.60	768105.60	3072422.42
Q2. Prepare a High Case budget alternative assuming that production ramps up 50% in the second half.      In this scenario, assume fixed costs increase by $60,000/yr due to need for additional storage space, while variable cost structure is unchanged
	1st Half of year		2nd Half of year
Particular	Q1	Q2	Q3	Q4	Total
Production unit	100000	100000	150000	150000	500000
50% increse in 2nd quarter ie 100000*150%=150000
Material Metal Rod
Matel Rod Requirment per Quater => 100000*100/95= 105263.16 (App) i.e 105264 |(105264*0.4=42105.60)|	42105.60	42105.60	63158.00	63158.00	210527.20
Material Metal Rod in 2nd Half of year per quarter =150000*100/95= 157895 (App) | (157895*0.4=63158.00)|
Since material rods are in parts so we have considered .16 as 1 part
Material High strength fabric (per umbrella requires 1.5 yard fabric)	200,000.00	200,000.00	300,000.00	300,000.00	1,000,000.01
Hence Requirment for 100000 units = 100000*1.5= 150000 sq yard
Requirment of Fabric before loss in cutting (1st Half yr) =150000*100/90=166666.67         |(166666.67*1.2=200000)
Requirment of Fabric before loss in cutting in 2nd half =225000*100/90=250000      | (250000*1.2=300000)
Amount reliased form sale of Scrape	(4,000.00)	(4,000.00)	(6,000.00)	(6,000.00)	(20,000.00)
for 1st half yr(166666.67-150000)*0.24=4000 / for 2nd half yr= (250000-225000)*0.24 =6000
Since Resale of Scape is Revenue shown in negative
Material Resin Handle	25000	25000	37500	37500	125000
Direct Labour Cutting and Assembly (500*20*28)	280000	280000	420000	420000	1400000
No batch per quater =100000/200=500                               |(500*20*28=280000)|					0
No batch per quarter in 2nd half =150000/200=750        |(750*20*28=420000)|					0
Packing and inspection (300*500=150000) 2nd Qt Packing and inspection (300*750=225000)	150000	150000	225000	225000	750000
					0
Fixed Cost per quarter 360000/4	90000	90000	90000	90000	360000
					0
Total Cost of Production	783105.60	783105.60	1129658.00	1129658.00	3825527.21