Question

Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Each handisaw sells for $56. Wesley expects the following unit sales:

January	4,800
February	5,000
March	5,500
April	5,300
May	4,700

Wesley’s ending finished goods inventory policy is 30 percent of the next month’s sales.

Suppose each handisaw takes approximately 0.60 hours to manufacture, and Wesley pays an average labor wage of $18 per hour.

Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $6.00 each. The company has an ending direct materials inventory policy of 20 percent of the following month’s production requirements. Materials other than the housing unit total $4.50 per handisaw.

Manufacturing overhead for this product includes $72,000 annual fixed overhead (based on production of 27,000 units) and $1.20 per unit variable manufacturing overhead. Wesley’s selling expenses are 7 percent of sales dollars, and administrative expenses are fixed at $18,000 per month.

Required:
Compute the following for the first quarter

	January February March 1st Quarter total 1. Budgeted Sales Revenue 2. Budgeted Production in Units 3. Budgeted Cost of Direct Materials Purchases for the Plastic Housings 4. Budgeted Direct Labor Cost

Answer 1

Solution 1:

Budgeted Sales Revenue - Wesley Power
Particulars	January	February	March	1st Quarter Total
Expected sales units	4800	5000	5500	15300
Selling price per unit	$56.00	$56.00	$56.00	$56.00
Budgeted Sales Revenue	$268,800.00	$280,000.00	$308,000.00	$856,800.00

Solution 2:

Production Budget in Units - Wesley Power Tools For First quarter
Particulars	January	Feburary	March	1st Quarter Total	April
Sales	4800	5000	5500	15300	5300
Desired ending inventory (30% of next month sales)	1500	1650	1590	1590	1410
Total needs	6300	6650	7090	16890	6710
Less: Beginning inventory	1440	1500	1650	1440	1590
Units produced	4860	5150	5440	15450	5120

Solution 3:

Direct material purchase budget (Plastic housing) -Wesley Power Tools
Particulars	January	Feburary	March	1st Quarter Total
Budgeted Production units	4860	5150	5440	15450
Direct material per unit	1	1	1	1
Production needs	4860	5150	5440	15450
Desired ending inventory (20% of following month production requirements)	1030	1088	1024	1024
Total needs	5890	6238	6464	16474
Less: Beginning inventory	972	1030	1088	972
Direct materials to be purchased (Plastic housing)	4918	5208	5376	15502
Cost per plastic housing	$6.00	$6.00	$6.00	$6.00
Budgeted cost of purchases	$29,508.00	$31,248.00	$32,256.00	$93,012.00

Solution 4:

Budgeted labor cost budget - Wesely Power Tool
Particulars	January	Feburary	March	1st Quarter Total
Budgeted Production units	4860	5150	5440	15450
Direct labor hours per unit	0.60	0.60	0.60	0.60
Budgeted direct labor hours	2916	3090	3264	9270
direct labor cost per hour	$18.00	$18.00	$18.00	$18.00
Budgeted direct labor cost	$52,488.00	$55,620.00	$58,752.00	$166,860.00