Question

Haggstrom, Inc., manufactures steel fittings. Each fitting requires both steel and an alloy that allows the fitting to be used under extreme conditions. The following data apply to the production of the fittings: Direct materials per unit 3 pounds of steel at $0.60 per pound 0.5 pounds of alloy at $1.80 per pound Direct labor per unit 0.02 hours at $21 per hour Overhead per unit Indirect materials $ 0.60 Indirect labor 0.70 Utilities 0.55 Plant and equipment depreciation 0.85 Miscellaneous 0.65 Total overhead per unit $ 3.35 The plant and equipment depreciation and miscellaneous costs are fixed and are based on production of 250,000 units annually. All other costs are variable. Plant capacity is 300,000 units annually. All other overhead costs are variable. The following are forecast for year 2. Contract negotiations with the union are expected to lead to an increase in hourly direct labor costs of 4 percent, mostly in the form of additional benefits. Commodity prices, including steel, are expected to decline by 10 percent due to the economic slowdown. Alloy prices are expected to remain constant. Plant and equipment depreciation costs are expected to increase by 6 percent. All other unit overhead costs are expected to remain constant. Haggstrom expects to sell 200,000 units in year 2. The current inventory of fittings is 20,000 units, and management would like to see a reduction of inventory of 10,000 units by the end of the year 2. Steel and alloy inventories will not change. Sales are approximately uniform over the year. Required: Prepare a production budget for the year 2. Estimate the materials, labor, and overhead costs for year 2. (Do not round intermediate calculations.)

Answer 1

Production budget for Year-2
Expected sales units			200,000
Add: Desired ending inventory			10000
Less: Beginning invenory			20000
Budgeted Production in Year-2			190,000	units
Budgetd material cost for Year-2				Steel	Alloy	Total
Budgeted Production				190,000	190,000
Material required per unit				3	0.5
Material requirement for production				570,000	95,000
Material cost per unit				0.54	1.8
Material cost in $				307800	171000	478,800
Budgeted Labour cost in Year-2
Budgeted Production units				190,000
Labour hours per unit				0.02
Budgeted labour hours				3800
Lbour rate per hour				21.84
Budgeted labor cost				82992
Budgeted OH cost for Year-2
Indirect material(190,000 units *0.60)				114000
Indirect labour (190,000 units*0.70)				133000
utilities (190,000 units @ 0.55)				104500
Plaant maintenance (190,000 units @0.85)				161500
Misc expense (190,000 units @0.65)				123500
Plant depreciation(250,000+6%)				265000
Total Budgeted OH				901500