Question

Detmer Enterprises has the following budgeted sales:

                  Budgeted Sales in Units
June                   6,800 units
July                   5,100 units
August                 4,400 units
September              7,300 units

Past experience has shown that the ending finished goods inventory for
each month should be equal to 20% of the next month's expected sales in
units. Additionally, it is known that every unit produced requires four
direct labor hours to make and direct laborers are paid $15 per hour.

Assume that Detmer pays 65% of its direct labor in the same month the
employee works, pays 30% of its direct labor in the month after the
employee works, and the final 5% is paid two months after the employee
works.

Calculate the budgeted cash payments for direct labor for the month of
August.

Answer 1

Solution:

Budgeted Cash payments for direct labor for the month of August

$ 302,880

Calculation:

Particulars	June	July	August
Budgeted sales (in units)	6,800	5,100	4,400
Add: Ending Inventory	1,020	880	1,460
Less: Beginning Inventory	(1,360)	(1,020)	(880)
Units to be produced	6,460	4,960	4,980
Direct labor hours required per unit	4 hours	4 hours	4 hours
Total Direct labor hours required	25,840	19,840	19,920
Total Direct labourers cost ($ 15 per hour)	$ 387,600	$ 297,600	$ 298,800
Budgeted Cash Payments	$ 251,940	$ 309,720	$ 302,880

Given Information: Past experience has shown that the ending finished goods inventory for each month should be equal to 20% of the next month's expected sales in units.

Note: Ending Inventory of a month will be beginning inventory for the following month.

Note: June’s Beginning inventory is same as May’s ending inventory.

Calculation of Ending Inventory

May= 20% of 6,800=1,360

June=20% of 5, 100=1,020

July =20% of 4, 400=880

August =20% of 7,300= 1,460

Given Information: Assume that Detmer pays 65% of its direct labor in the same month the employee works, pays 30% of its direct labor in the month after the employee works, and the final 5% is paid two months after the employee works.

Calculation of budgetd Cash payments for direct labour

June-

=65 % paid in June = $ 387,600 X 65%= $ 251,940

July-

=30 % of June’s work + 65 % of July’s work

=$ 387,600 X 30% + $297,600 X 65%

=$ 116,280 + $ 193,440

=$ 309,720

August-

=5 % of June’s work + 30 % of July’s work + 65 % of August’s work

=$ 387,600 X 5% + $297,600 x 30% + $ 298,800 x 65%

= $ 19,380 + $ 89,280 + $ 194,220

=$ 302,880