Question

Graham Inc. produces three different types of chairs: an outdoor chair, an office chair, and a kitchen chair. The outdoor chairs are made entirely of plastic. The office chairs have a plastic base and are covered in leather. The kitchen chairs are made out of wood with a leather seat. As the controller, you are expected to prepare Graham 's operating budget for January of 2021. Here is Graham's balance sheet as of 12/31/2020:

Cash	12100
AR	9000
DM	810875
FG Inven	1090225
Land	8000
Buidling and E	70000
Accumlate Depreciation	(29200)
Total Asset	1971000
AP	2580
Captial stock	17500
Retail Earning	1950920
Stock holders Equity	1971000

The Outdoor Chairs are expected to sell for $220 each, the Office Chairs are expected to sell for $600 each, and the Kitchen Chairs are expected to sell for $755 each.

1. For each product, Graham plans to have ending finished goods inventory (in units) for each month that equals 25% of the next month sales (in units). Finished Goods inventory on 12/31/2020 consists of 970 Outdoor Chairs at a cost of $180 per unit, 750 Office Chairs at a cost of $550 per unit, and 805 Kitchen Chairs at a cost of $625 per unit. Graham uses FIFO to account for its finished goods inventory.

   1. 	Outdoor Chain	office chair	Kitchen chair
      Jan	2700	4700	4400
      Feb	2600	5200	4100
      Mar	3000	6400	3600

2. Graham uses plastic, leather, and wood to make its chairs. Each Outdoor Chair requires 25 pounds of plastic. Each Office Chair requires15 pounds of plastic and 21 square feet of leather. Each Kitchen Chair requires 9 square feet of leather and 42 board feet of wood. The company expects to pay $2.25 per pound of plastic, $10.95 per square foot of leather, and $8.00 per board foot of wood.
3. Direct Materials (DM) inventory on 12/31/2020 consists of 38,900 pounds of plastic at a cost of $1.75 per pound, 37,300 square feet of leather at a cost of $15.00 per square foot, and 28,200 board feet of wood at a cost of $6.50 per board foot. The target ending DM inventory (in units) for each material is budgeted to be 20% of the amount of material required to be used in production that month (e.g., the total pounds of plastic required to be used in production in a given month x 20% = the target ending inventory for plastic in that month). Graham uses FIFO to account for its DM inventory.
4. Each Outdoor Chair requires 5 hours of direct labor, each Office Chair requires 3.5 hours of direct labor, and each Kitchen Chair requires 4 hours of direct labor. The direct labor rate is expected to be $14 per hour. All of the products are made in batches of 70 units. Each batch of Outdoor Chairs requires 1.5 setup hours. Each batch of Office Chairs requires 3 setup hours. Each batch of Kitchen Chairs requires 2 setup hours. Each Outdoor Chair requires 4 machine hours, each Office Chair requires 6 machine hours, and each Kitchen Chair requires 7 machine hours.

   1. Cost pool	Rate
      Set up	455 hour
      Machine	12
      Assembly	8 per labor
      Packaging	5 per chair

5. Variable selling and administrative costs are $10.50 per unit sold. Fixed selling and administrative costs are $467,000 per month

Prepare a complete operating budget for Graham Inc. for the month of January 2021. This should include all of the following schedules: - revenues budget

• production budget (in units)
• direct materials usage budget (in units and dollars)
• direct materials purchases budget (in units and dollars)
• direct labor cost budget
• manufacturing overhead cost budget
• the budget of the ending finished goods inventory unit cost
• ending inventories budget
• cost of goods sold budget
• nonmanufacturing costs budget
• budgeted income statement for the month

Answer 1

For Jan
	Outdoor chair	Office chair	Kitchen chair	Total
Sales units	2700	4700	4400	11800
Price per unit	220	600	755
Revenue	594000	2820000	3322000	6736000
Production
	Outdoor chair	Office chair	Kitchen chair	Total
Sales units	2700	4700	4400	11800
Desired ending inventory	650	1300	1025	2975
Total units required	3350	6000	5425	14775
Beginning inventory	970	750	805	2525
Total production required	2380	5250	4620	12250
Direct material usage budget
	Outdoor chair	Office chair	Kitchen chair	Total
Production required	2380	5250	4620
Plastic required er init	25	15
Plastic required for production	59500	78750		138250
Leather required per unit		21	9
Leather required for production		110250	41580	151830
Wood required per unit			42
Wood required for production			194040	194040
Direct material usage budget
	Plastic	Leather	Wood	Total
	(pounds)	(sq feet)	(board feet)
For production	138250	151830	194040
Desired ending inventory	27650	30366	38808
Total raw material required	165900	182196	232848
Beginning inventory	38900	37300	28200
Total raw materials to be purchased	127000	144896	204648
Rate	2.25	10.95	8
Direct material costs	285750	1586611	1637184	3509545
Direct labor cost budget
	Outdoor chair	Office chair	Kitchen chair	total
Production required	2380	5250	4620
Per hour labor required	5	3.5	4
Direct labor hours required	11900	18375	18480
Rate	14	14	14
Direct labor costs	166600	257250	258720	682570

Overhead budget
	Outdoor chair	Office chair	Kitchen chair
Production required	2380	5250	4620
units per batch	70	70	70
No of batches	34	75	66
Set-up hours per batch	1.5	3	2
Total set-up hours	51	225	132
Set-up cost per hour	455	455	455
Total set-up costs	23205	102375	60060
Machine hours per unit	4	6	7
Total machine hours	9520	31500	32340
Machine costs per hour	12	12	12
Total machine costs	114240	378000	388080
Total direct labor hours	11900	18375	18480
Assembly rate per hour	8	8	8
Total assembly costs	95200	147000	147840
Production units	2380	5250	4620
Packing cost per chair	5	5	5
Total packing costs	11900	26250	23100
Total overhead costs	244545	653625	619080	1517250
Production units	2380	5250	4620
Overhead cost per unit	102.75	124.5	134
Ending finished goods inventory unit cost
	Outdoor chair	Office chair	Kitchen chair
Direct material
Plastic	56.25	33.75
Leather		229.95	98.55
Wood			336
Direct labor	70	49	56
Overhead costs	102.75	124.5	134
Total unit cost	229	437.2	624.55
Ending inventories budget
	Outdoor chair	Office chair	Kitchen chair	Total
Finished goods
Units	650	1300	1025
Manufacturing cost per unit	229	437.2	624.55
Finished Goods cost	148850	568360	640163.8	1357374
Raw materials	Plastic	Leather	Wood
	(pounds)	(sq feet)	(board feet)
units	27650	30366	38808
Cost per unit	2.25	10.95	8
Raw materials inventory	62212.5	332507.7	310464	705184.2

Cost of Goods sold budget
		Total
Opening inventory		1090225
Cost of goods manufactured
Direct materials
Beginning	810875
Purchases	3509545
Ending	705184.2
Direct material usage		3615236
Direct labor		682570
Overheads		1517250
Total goods available for sale		6905281
Ending inventory costs		1357374
Cost of Goods sold budget		5547907

Non-manufacturng costs budget
	Outdoor chair	Office chair	Kitchen chair	Total
Sales units	2700	4700	4400
Variable cost per unit	10.5	10.5	10.5
Total variable costs	28350	49350	46200	123900
Fixed costs				467000
Total non-manufacturing costs				590900

Income statement
Sales	6736000
Cost of goods sold	5547907
Gross margin	1188093
Less: operating costs
Selling and adm variable	123900
Selling and adm fixed	467000
Total operating costs	590900
Net operating income	597193