Haggstrom, Inc., manufactures steel fittings. Each fitting requires both steel a
ID: 2524988 • Letter: H
Question
Haggstrom, Inc., manufactures steel fittings. Each fitting requires both steel and an alloy that allows the fitting to be used under extreme conditions. The following data apply to the production of the fittings: Direct materials per unit Direct labor per unit Overhead per unit 3 pounds of steel at $0.50 per pound 0.5 pounds of alloy at $2.00 per pound 0.02 hours at $25 per hour Indirect materials Indirect labor Ubilities Plant and equipment depreciation Miscellaneous $0.60 0.70 0.50 0.90 0.70 $3.40 Total overhead per unit The plant and equipment depreciation and miscellaneous costs are fixed and are based on production of 250,000 units annually. All other costs are variable. Plant capacity is 300,000 units annually. All other overhead costs are variable. The following are forecast for year 2. Contract negotiations with the union are expected to lead to an increase in hourly direct labor costs of 4 percent, mostly in the form of additional benefits. Commodity prices, including steel, are expected to decline by 10 percent due to the economic slowdown. Alloy prices are expected to remain constant. Plant and equipment depreciation costs are expected to increase by 6 percent. All other unit overhead costs are expected to remain constant. Haggstrom expects to sell 210,000 units in year 2. The current inventory of fittings is 20,000 units, and management would like to see a reduction of inventory of 10,000 units by the end of the year 2. Steel and alloy inventories will not change. Sales are approximately uniform over the year Required Prepare a production budget for the year 2 HAGGSTROM, INC. Production Budget For the Year 2 (in units) 210,000 10,000 220,000 20,000 200,000 xpected sales Desired ending inventory of finished goods Total needs ess: Beginning inventory of finished goods Units to be produced Estimate the materials, labor, and overhead costs for year 2. (Do not round intermediate calculations.) Material costs Labor costs Overhead costsExplanation / Answer
Answer:
1
Prepare a production budget for the year 2.
HAGGSTROM INC
Production Budget
For the Year 2
Unit 2
Expected sales
210,000
Add: Desired ending inventory of finished goods
10,000
Total needs
220,000
Less: Beginning inventory of finished goods
-20,000
Unit to be produced
200,000
2
Estimate the materials, labor, and overhead costs for year 2
Material costs
470,000
Labor cost
104000
Overhead cost
773000
Working notes for the above answer is as under
Direct materials
Steel 200,000 × 3 pounds × $0.50 × 0.90
270,000
Alloy 200,000 × 0.5 pounds × $2.00
200,000
Total direct materials
470,000
Direct labor
200,000 × 0.02 hr. × $25 × 1.04
104,000
Overhead
Indirect materials
200,000x0.60
120,000
Indirect Labor
200,000x0.70
140,000
Utility
200,000x0.50
100,000
Plant and equipment depreciation
200,000x0.90x1.06
238,500
Miscellaneous
200,000x0.70
175,000
Total overhead
773,500
Total budgeted manufacturing costs
1,347,500
HAGGSTROM INC
Production Budget
For the Year 2
Unit 2
Expected sales
210,000
Add: Desired ending inventory of finished goods
10,000
Total needs
220,000
Less: Beginning inventory of finished goods
-20,000
Unit to be produced
200,000
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