PA8-4 Preparing Operating Budget Components [LO 8-3a, b, c, d] Wesley Power Tool
ID: 2512093 • Letter: P
Question
PA8-4 Preparing Operating Budget Components [LO 8-3a, b, c, d]
Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Each handisaw sells for $32. Wesley expects the following unit sales:
Wesley’s ending finished goods inventory policy is 30 percent of the next month’s sales.
Suppose each handisaw takes approximately .60 hours to manufacture, and Wesley pays an average labor wage of $22 per hour.
Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $6.00 each. The company has an ending raw materials inventory policy of 20 percent of the following month’s production requirements. Materials other than the housing unit total $4.50 per handisaw.
Manufacturing overhead for this product includes $72,000 annual fixed overhead (based on production of 27,000 units) and $1.20 per unit variable manufacturing overhead. Wesley’s selling expenses are 7 percent of sales dollars, and administrative expenses are fixed at $18,000 per month.
Required:
1. Compute the following for the first quarter: (Do not round your intermediate calculations.)
rev: 04_09_2015_QC_CS-13078
Explanation / Answer
2 Budgeted production in units Particulars Jan Feb Mar Quarter April a sales 2400 2600 3100 8100 2900 b ending finished goods 780 930 870 2580 690 (2600*30%) (3100*30%) (2900*30%) (2300*30%) c begining finished goods 720 780 930 2430 870 (2400*30%) (2600*30%) (3100*30%) (2900*30%) d Budgeted production(a+b-c) 2460 2750 3040 8250 2720 3 Budgeted cost of raw material purchases Particulars Jan Feb Mar Quarter a Raw materials required for production 2460 2750 3040 8250 b Ending raw materials 550 608 544 1702 (2750*20%) (3040*20%) (2720*20%) c Beginning raw materials 492 550 608 1650 (2460*20%) (2750*20%) (3040*20%) d Budgeted raw material purchases(a+b-c) 2518 2808 2976 8302 e cost per unit $6 $6 $6 F Budgeted cost of materials(d*e) $15108 $16848 $17856 $49812 4 Budgeted Direct labour cost Particulars Jan Feb Mar quarter a Budgeted production 2460 2750 3040 8250 b time required per unit 0.60 hrs 0.60 hrs 0.60 hrs c total labour hours required(a*b) 1476 hrs 1650 hrs 1824 hrs 4950 d Budgeted direct labour cost@22 per hour $32472 $36300 $40128 108900 Particulars Jan Feb Mar Quarter 2 Budgeted production(a+b-c) 2460 2750 3040 8250 3 Budgeted cost of materials(d*e) $15108 $16848 $17856 $49812 4 Budgeted direct labour cost@22 per hour $32472 $36300 $40128 $108900 8
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