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

Question

Donnegal Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2014. Donnegal has a labor contract that calls for a wage increase to $9 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1. Donnegal expects to begin the year with 14,600 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month's sales, plus 40% of the second following month's sales. Prepare a production budget for Donnegal Company by month and for the first quarter of the year. Prepare a direct labor budget for Donnegal Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours.

Explanation / Answer

Donnegal Company:

Production Budget for the quarter ending March 31, 2014:

Direct labor budget for the quarter ending March 31:

January February March Sales in units 10,000 11,500 8,200 Desired ending inventory 14,780 11,440 11,700 Total units required 24,780 22,940 19,900 Less beginning inventory 14,600 14,780 11,440 Number of units to be produced 10,180 8,160 8,460

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