Question

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2017. January February March April May Estimated unit sales 12,000 14,000 13,000 11,000 11,000 Sales price per unit $50.00 $47.50 $47.50 $47.50 $47.50 Direct labor hours per unit 2.0 2.0 1.5 1.5 1.5 Wage per direct labor hour $8.00 $8.00 $8.00 $9.00 $9.00 Lowell has a labor contract that calls for a wage increase to $9.00 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1. Lowell expects to begin the year with 17,600 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 40% of the second following month’s sales.

Prepare a direct labor budget for Lowell Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours.

Answer 1

Solution:

Budgeted Direct Labor Cost
	January	February	March	1st Quarter Total
Budgeted Production Units (Frames) (Refer Note 1)	13600	12200	11000
Required Labor Hour per unit	2.00	2.00	1.50
Total Required Labor Hours	27200	24400	16500	68100
Labor Rate per hour	8	8	8	8
Labor Cost Budget	$217,600	$195,200	$132,000	$544,800

Note 1 --- Budgeted Production Units

	January	February	March	April	May
Budgeted Sales in Unit	12000	14000	13000	11000	11000
Plus: Desired Ending Inventory (100% of following month's Sales + 40% of second following month's sales	19200 (14000+13000*40%)	17400 (13000 + 11000*40%)	15400 (11000 + 11000*40%)
Total Needs	31200	31400	28,400
Less: Estimated Beginning Inventory (Ending inventory of last month)	17600 (given)	19200	17400
Units to be produced	13600	12200	11000

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