Budget Preparation Collins Company is preparing its master budget for April. Use
ID: 2563771 • Letter: B
Question
Budget Preparation
Collins Company is preparing its master budget for April. Use the given estimates to determine the amounts necessary for each of the following requirements. (Estimates may be related to more than one requirement.)
a. What should total sales revenue be if territories A and B estimate sales of 10,000 and 10,000 units, respectively, and the unit selling price is $40?
$Answer
b. If the beginning finished goods inventory is an estimated 2,000 units and the desired ending inventory is 3,000 units, how many units should be produced?
Answer
c. What dollar amount of material should be purchased at $4 per pound if each unit of product requires 3 pounds and beginning and ending materials inventories should be 5,000 and 4,000 pounds, respectively?
$Answer
d. How much direct labor cost should be incurred if each unit produced requires 1.5 hours at an hourly rate of $11?
$Answer
e. How much manufacturing overhead should be incurred if fixed manufacturing overhead is $47,000 and variable manufacturing overhead is $2.50 per direct labor hour?
$Answer
Explanation / Answer
Solution:
Collins Company
Estimated sales = number of units x unit sales price
Estimated sales for territory A = 10,000 units x $40 per unit = $400,000
Estimated sales for territory B = 10,000 units x $40 per unit = $400,000
Total budgeted sales revenue = estimated sales of territory A + estimated sales of territory B
= $400,000 + $400,000 = $800,000
Total budgeted sales revenue = $800,000
Beginning finished goods inventory = 2,000 units
Ending finished goods inventory = 3,000 units
Sales = 10,000 + 10,000 = 20,000 units
Number of units produced + beginning finished goods inventory – ending finished goods inventory = sales
Number of units produced = sales + ending finished goods inventory – beginning finished goods inventory
= 20,000 + 3,000 – 2,000 = 21,000
Hence, number of units produced = 21,000
1 unit = 3 pounds
Units to be produced = 21,000
Total pounds needed for production 21,000 x 3 = 63,000 pounds
Add: ending raw materials 4,000 pounds
Total materials required 67,000 pounds
Less: beginning raw materials 5,000 pounds
Materials to be purchased 62,000 pounds
Cost per pound $4
Total purchases = 62,000 X $4 = $248,000
1 unit = 1.5 hours
Number of hours needed for 21,000 units to be produced = 21,000 x 1.5 =31,500 hours
Direct labor cost per hour = $11
Estimated direct labor cost = 31,500 x $11 = $346,500
Total manufacturing overhead = fixed manufacturing overhead + variable manufacturing overhead
Fixed manufacturing overhead = $47,000
Variable manufacturing overhead = $2.50 per direct labor hour
Number of direct labor hours needed for production = 31,500
Total variable manufacturing overhead = 31,500 x $2.50 = $78,750
Total estimated manufacturing overhead = $47,000 + $78,750 = $125,750
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