Lowell Company makes and sells artistic frames for pictures. The controller is r
ID: 2511233 • Letter: L
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 12,000 14,000 13,000 11,000 11,000 Sales price per unit $50.00 $47.50 $47.50 $47.50 $47.50 Direct labor hours per unit 2.0 2.0 1.5 1.5 1.5 Wage per direct labor hour $8.00 $8.00 $8.00 $9.00 $9.00 Lowell has a labor contract that calls for a wage increase to $9.00 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 17,600 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 direct labor budget for Lowell Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours.
Explanation / Answer
Solution:
Budgeted Direct Labor Cost
January
February
March
1st Quarter Total
Budgeted Production Units (Frames)
(Refer Note 1)
13600
12200
11000
Required Labor Hour per unit
2.00
2.00
1.50
Total Required Labor Hours
27200
24400
16500
68100
Labor Rate per hour
8
8
8
8
Labor Cost Budget
$217,600
$195,200
$132,000
$544,800
Note 1 --- Budgeted Production Units
January
February
March
April
May
Budgeted Sales in Unit
12000
14000
13000
11000
11000
Plus: Desired Ending Inventory (100% of following month's Sales + 40% of second following month's sales
19200
(14000+13000*40%)
17400
(13000 + 11000*40%)
15400
(11000 + 11000*40%)
Total Needs
31200
31400
28,400
Less: Estimated Beginning Inventory (Ending inventory of last month)
17600
(given)
19200
17400
Units to be produced
13600
12200
11000
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Budgeted Direct Labor Cost
January
February
March
1st Quarter Total
Budgeted Production Units (Frames)
(Refer Note 1)
13600
12200
11000
Required Labor Hour per unit
2.00
2.00
1.50
Total Required Labor Hours
27200
24400
16500
68100
Labor Rate per hour
8
8
8
8
Labor Cost Budget
$217,600
$195,200
$132,000
$544,800
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