Kelvin, Inc. manufactures model airplane kits. Direct materials are 6 ounces of

Question

Kelvin, Inc. manufactures model airplane kits. Direct materials are 6 ounces of plastic per kit and the plastic costs $2 per ounce. Indirect materials are considered insignificant and are not included in the budgeting process. Each kit requires 0.75 hours of direct labor at an average cost of $55 per hour. Manufacturing overhead is allocated using direct labor hours as the allocation base. The company has prepared the followingbudgets: Kelvin projects sales of 200,100, 400, and 900 kits for the next four quarters. Kelvin has no kits in beginning inventory. Determine the cost per kit to manufacture the model airplane kits. Prepare a cost of goods sold budget for the year. Round amounts to two decimal places.

Explanation / Answer

Determination of cost per kit to manufacture the model airplane kits Direct Material [6 ounces * $2] $12.00 Direct Labour [0.75 hours * $55] $41.25 Manufacturing Overheads [ 0.75 hours * $1.64] $1.23 Total Projected Manufacturing Cost per kit $54.48 Preparation of cost of goods sold budget for the year Kelvin Inc. Cost of goods sold budget For the year ended December 31 First Quarter Second Quarter Third Quarter Fourth Quarter Total Cost per unit $54.48 $54.48 $54.48 $54.48 $54.48 kits produced and sold 200 100 400 900 1600 Total Budgeted cost of goods sold $10,896.00 $5,448.00 $21,792.00 $49,032.00 $87,168.00

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