Question

1. Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:

	Unit Sales
April		60,000
May		80,000
June		100,000
July		85,000

The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 20% of the following month’s unit sales. The inventory at the end of March was 12,000 units.

Required:

Prepare a production budget by month and in total, for the second quarter.

2. Two grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $1.70 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	78,000	108,000	168,000	118,000		88,000

Musk oil has become so popular as a perfume ingredient that it has become necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 31,200 grams of musk oil will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2. (Round "Unit cost of raw materials" answers to 2 decimal places.)

3. The direct labor budget of Yuvwell Corporation for the upcoming fiscal year contains the following details concerning budgeted direct labor-hours:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Budgeted direct labor-hours	9,600	9,000	9,300	10,100

The company uses direct labor-hours as its overhead allocation base. The variable portion of its predetermined manufacturing overhead rate is $4.00 per direct labor-hour and its total fixed manufacturing overhead is $64,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $16,000 per quarter.

Required:

1. Prepare the company’s manufacturing overhead budget for the upcoming fiscal year.

2. Compute the company’s predetermined overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year.

Answer 1

Solution 1:

Down under Products Ltd
Production Budget
2nd quarter of the year
Particulars	April	May	June	Quarter
Unit Sales	60000	80000	100000	240000
Add: Desired Ending Inventory (20% of following month sale)	16000	20000	17000	17000
Total Needed	76000	100000	117000	257000
Less: Beginning Inventory	12000	16000	20000	12000
Required production in units	64000	84000	97000	245000

Solution 2:

Direct Material Budget
Particulars	Q1	Q2	Q3	Q4	Year 2
Budgeted proction in bottles	78000	108000	168000	118000	472000
Material needed per unit -Grams of musk oil	2	2	2	2	2
Material needed for unit to produce - Grams	156000	216000	336000	236000	944000
Add: Desired ending units of musk oils (Grams) (20% of follwing quarter's production needs)	43200	67200	47200	35200	35200
Less: units of material in beginning inventory - Grams	31200	43200	67200	47200	31200
Units of material to purchase - Grams of musk oil	168000	240000	316000	224000	948000
Cost per gram of musk oil	$1.70	$1.70	$1.70	$1.70	$1.70
Budgeted cost of raw material purchases - Musk oil	$285,600.00	$408,000.00	$537,200.00	$380,800.00	$1,611,600.00

Solution 3.1:

Budgeted manufacturing overhead budget- YUVWELL Corporation
Particulars	Q1	Q2	Q3	Q4	Year
Budgeted Direct labor hours	9600	9000	9300	10100	38000
Predetermined Variable overhead cost per unit	$4.00	$4.00	$4.00	$4.00	$4.00
Budgeted variable overhead cost	$38,400.00	$36,000.00	$37,200.00	$40,400.00	$152,000.00
Budgeted fixed overhead cost	$64,000.00	$64,000.00	$64,000.00	$64,000.00	$256,000.00
Budgeted manufacturing overhead	$102,400.00	$100,000.00	$101,200.00	$104,400.00	$408,000.00

Solution 3.2:

Particulars	Year
Total Budgeted Direct labor hours	38000
Total Budgeted fixed manufacturing overhead cost	$256,000.00
Predetermined Fixed manufacturing overhead cost per unit	$6.73684
Predetermined Variable manufacturing overhead cost per unit	$4.00
Predetermined Overhead rate	$10.73684