Question

PA8-4 Preparing Operating Budget Components [LO 8-3a, b, c, d]

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 $32. Wesley expects the following unit sales:

January	2,400
February	2,600
March	3,100
April	2,900
May	2,300

Wesley’s ending finished goods inventory policy is 30 percent of the next month’s sales.
       Suppose each handisaw takes approximately .60 hours to manufacture, and Wesley pays an average labor wage of $22 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 raw 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:
1. Compute the following for the first quarter: (Do not round your intermediate calculations.)

	January February March 1st Quarter total 1. Budgeted Sales Revenue $76,800 $83,200 $99,200 $259,200 2. Budgeted Production in Units 0 3. Budgeted Cost of Raw Material Purchases for the Plastic Housings $0 4. Budgeted Direct Labor Cost $0

rev: 04_09_2015_QC_CS-13078

Answer 1

	2	Budgeted production in units
		Particulars	Jan	Feb	Mar	Quarter	April
	a	sales	2400	2600	3100	8100	2900
	b	ending finished goods	780	930	870	2580	690
			(2600*30%)	(3100*30%)	(2900*30%)		(2300*30%)
	c	begining finished goods	720	780	930	2430	870
			(2400*30%)	(2600*30%)	(3100*30%)		(2900*30%)
	d	Budgeted production(a+b-c)	2460	2750	3040	8250	2720
	3	Budgeted cost of raw material purchases
		Particulars	Jan	Feb	Mar	Quarter
	a	Raw materials required for production	2460	2750	3040	8250
	b	Ending raw materials	550	608	544	1702
			(2750*20%)	(3040*20%)	(2720*20%)
	c	Beginning raw materials	492	550	608	1650
			(2460*20%)	(2750*20%)	(3040*20%)
	d	Budgeted raw material purchases(a+b-c)	2518	2808	2976	8302
	e	cost per unit	$6	$6	$6
	F	Budgeted cost of materials(d*e)	$15108	$16848	$17856	$49812
	4	Budgeted Direct labour cost
		Particulars	Jan	Feb	Mar	quarter
	a	Budgeted production	2460	2750	3040	8250
	b	time required per unit	0.60 hrs	0.60 hrs	0.60 hrs
	c	total labour hours required(a*b)	1476 hrs	1650 hrs	1824 hrs	4950
	d	Budgeted direct labour cost@22 per hour	$32472	$36300	$40128	108900
		Particulars	Jan	Feb	Mar	Quarter
	2	Budgeted production(a+b-c)	2460	2750	3040	8250
	3	Budgeted cost of materials(d*e)	$15108	$16848	$17856	$49812
	4	Budgeted direct labour cost@22 per hour	$32472	$36300	$40128	$108900

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