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		10,300		11,400		8,200		8,100		8,700
Sales price per unit		$50.80		$48.20		$48.20		$48.20		$48.20
Direct labor hours per unit		2.1		2.1		1.7		1.7		1.7
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 17,140 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 60% of the second following month’s sales.

A) Prepare a production budget for Lowell Company by month and for the first quarter of the year.

B) Prepare a direct labor budget for Lowell company by month and for the first quarter of the year

Answer 1

Answer a.
LOWELL COMPANY
Frame Production Budget
	Jan	Feb	Mar	Total
Sales In units	10,300	11,400	8,200	29,900
Add: Ending Inventory in units	16,320	13,060	13,320	13,320
Total Needs	26,620	24,460	21,520	43,220
Less: Beginning Inventory in uints	(17,140)	(16,320)	(13,060)	(17,140)
Required Production in Units	9,480	8,140	8,460	26,080
Desired Ending Inventory
Jan - 11,400 X 100% + 8,200 X 60%	16,320
Feb - 8,200 X 100% + 8,100 X 60%	13,060
Mar - 8,100 X 100% + 8,700 X 60%	13,320
Answer b.
LOWELL COMPANY
Budgeted Direct Labor Costs
	Jan	Feb	Mar	Total
Required Production in Units	9,480	8,140	8,460	26,080
Lab. Hour required per unit	2.10	2.10	1.70
Total Labor Hours Required	19,908	17,094	14,382	51,384
Lab. Rate per Hour	8	8	8	8
Budgeted Direct Labor Costs	159,264	136,752	115,056	411,072