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 $68. Wesley expects the following unit sales:

January	6,000
February	6,200
March	6,700
April	6,500
May	5,900

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 $30 per hour.
       Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $7.00 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 _______ _______ _______   $0
2.   Budgeted Production in Units _______   _______   _______ 0

3.   Budgeted Cost of Raw Material Purchases for the Plastic Housings _______ _______ _______ $0
4.   Budgeted Direct Labor Cost _______   _______   _______ $0

Answer 1

1) Budgted sales revenue

	January	February	March	Quarter total
Sales units	6000	6200	6700	18900
Selling price	$68	$68	$68
Budgeted sales revenue	$4,08,000	$4,21,600	$4,55,600	$12,85,200

2) Budgeted production units

	January	February	March	Quarter
Budgeted sales units	6,000	6,200	6,700
Add: closing inventory	1,860	2,010	1,950
Less: Beginning inventory		1,860	2,010
Budgeted production in units	7,860	6,350	6,640	20,850

3) Budgeted cost of raw materials for Plastic Housing

Budgeted production in units	7,860	6,350	6,640	Quarter
DM required per unit	1	1	1
Total DM requirement	7,860	6,350	6,640
Add: closing DM	1,270	1,328	1,264
Less: opening DM		1,270	1,328
Budgeted DM purchases	9,130	6,408	6,576	22,114
Cost per dollar	$7	$7	$7
Budgeted DM purchases	$63,910	$44,856	$46,032	$1,54,798

4) Budgeted Direct labor cost

	January	February	March	Quarter
Budgeted production in units	7,860	6,350	6,640
DL hours per unit	0.6	0.6	0.6
Total DL hours	4,716	3,810	3,984	$12,510
Cost per DL hour	$30	$30	$30
Budgeted DL cost	$1,41,480	$1,14,300	$1,19,520	$3,75,300