EcoSacks manufactures cloth shopping bags. The controller is preparing a budget

Question

EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production:

EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag Direct materials per bag Direct labor per bag Overhead per bag 2.10 yard cotton at $3.10 per yard 1.10 yards canvas finish at $11.90 per yard 0.50 hour at $17.90 per hour Indirect labor Indirect materials Power Equipment costs Building occupancy $0.60 1.30 1.50 2.40 Total overhead per unit $7.80 You leam that equipment costs and building occupancy are fixed and are based on a normal production of 590,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 730,000 units per year. Labor costs per hour are not expected to change during the year. However, the cotton supplier has informed EcoSacks that it will impose a 20 percent price increase at the start of the coming budget period. No other costs are expected to change During the coming budget period, EcoSacks expects to sell 530,000 bags. Finished goods inventory is targeted to increase from the current balance of 110,000 units to 200,000 units to prepare for an expected sales increase the year after next as a result of legislation in several states regarding plastic bags. Production will occur evenly throughout the year. Inventory levels for cotton and canvas are expected to remain unchanged throughout the year. There is no work-in-process inventory. Required a. Prepare a production budget for the coming year. ECOSACKS Production Budget For the Coming Year (in units) Total needs Units to be produced

Explanation / Answer

1. Production budget:

2.

New Cotton price per yard=$3.10×1.20=$3.72 per yard

For coming year:

Direct material cost:

Cotton(620000×3.72×2.10 yard)=$4,843,440

Canvas(620,000×$11.90×1.10 yard)=$8,115,800

Total direct material =$12,959,240

Direct labour(620,000×.5×$17.90)=$5,549,000

Overhead:

Indirect labour(620,000×.60)=$372,000

Indirect material(620,000×$1.30)=$806,000

Power(620,000×1.50)=$930,000

Equipment costs(2.40×590,000)=$1,416,000(fixed)

Building occupancy($2×590,000)=$$1,180,000(fixed)

Total overhead=$4,704,000

Total budgeted costs=$23,212,240

Cost per unit(23,212,240/620,000)=$37.44 per unit

Sales 530,000 Ending inventory 200,000 Total needs 730,000 Less beginning inventory 110,000 Units to be produced 620,000

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.