EcoSacks manufactures cloth shopping bags. The controller is preparing a budget
ID: 2408880 • Letter: E
Question
EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production:
You learn that equipment costs and building occupancy are fixed and are based on a normal production of 650,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 850,000 units per year.
Labor costs per hour are not expected to change during the year. However, the cotton supplier has informed EcoSacks that it will impose a 20 percent price increase at the start of the coming budget period. No other costs are expected to change.
During the coming budget period, EcoSacks expects to sell 590,000 bags. Finished goods inventory is targeted to increase from the current balance of 170,000 units to 260,000 units to prepare for an expected sales increase the year after next as a result of legislation in several states regarding plastic bags. Production will occur evenly throughout the year. Inventory levels for cotton and canvas are expected to remain unchanged throughout the year. There is no work-in-process inventory.
Required:
a. Prepare a production budget for the coming year.
b. Estimate the materials, labor, and overhead costs for the coming year.
Direct materials per bag 1.50 yard cotton at $4.50 per yard 0.70 yards canvas finish at $12.50 per yard Direct labor per bag 1.00 hour at $18.50 per hour Overhead per bag Indirect labor $ 1.10 Indirect materials 0.70 Power 0.90 Equipment costs 1.80 Building occupancy 1.40 Total overhead per unit $ 5.90Explanation / Answer
a)
ECO sacks Manufactures
Production Budget
Budgeted Sales
590000
Add: Desired Closing Inventory
260000
Total Quantity Required
850000
Less: Opening Inventory
-170000
Units to be Produced
680000
b)
Working Note:
Price of Cotton = 4.50 + (4.50 *20%) = $ 5.4 per yard
Equipment Costs (Fixed) = 650,000 * 1.80 = 1,170,000
Building (Fixed) = 650,000 * 1.40 = 910,000
Direct Material Cost
Per Unit Cost
Total Cost (680000)
Cotton ($ 5.40 * 1.50)
8.1
5508000
Canvas ($ 12.50 * 0.70)
8.75
5950000
Total Direct Material Cost
11458000
Direct Labour Cost
Per Unit Cost
Total Cost (680000)
Labor Cost
18.5
12580000
Overhead Costs
Per Unit Cost
Total Cost (680000)
Indirect Labour
1.1
748000
Indirect Material
0.7
476000
Power
0.9
612000
Equipment Costs
1170000
Building Costs
910000
Total Overhead Costs
3916000
PLEASE, rate the solutuion if it's helpful to you .....
ECO sacks Manufactures
Production Budget
Budgeted Sales
590000
Add: Desired Closing Inventory
260000
Total Quantity Required
850000
Less: Opening Inventory
-170000
Units to be Produced
680000
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