Lowell Company makes and sells artistic frames for pictures. The controller is r

Question

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2017.

January   February   March April   May
Estimated unit sales 11,000       11,800       8,100       8,100       8,500
Sales price per unit $50.10       $47.20       $47.20 $47.20 $47.20
Direct labor hours per unit 2.2 2.2 1.5 1.5 1.5
Wage per direct labor hour       $9.00       $9.00       $9.00       $10.00       $10.00

Lowell has a labor contract that calls for a wage increase to $10.00 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1.

Lowell expects to begin the year with 16,900 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 50% of the second following month’s sales.

A.) Prepare a production budget for Lowell Company by month and for the first quarter of the year.

Explanation / Answer

(11800*100%)+(8100*.50)=(11800+4050)

= 15850

Jan Feb Mar Total Ending Inventory

(11800*100%)+(8100*.50)=(11800+4050)

= 15850

(8100*100%)+(8100*.50) = (8100+4050)= 12150 (8100*100%)+(8500*.50) = (8100+4250)= 12350 sales 11000 11800 8100 30900 Add:Ending Inventory desired 15850 12150 12350 40350 less:Beginning Inventory (16900) (15850) (12150) (44900) Uits to be produced 9950 8100 8300 26350

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