ezto.mheducation.com EcoSacks manufactures cloth shopping bags. The controler is

Question

ezto.mheducation.com EcoSacks manufactures cloth shopping bags. The controler is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production: Direct materials per bag 10 yard coltion at $4 per yard 2yods canvas finish at S12 per yard Direct labor per bag 0.5 hour at $18 per hour Overhead per bag Indirect labor ndirect materials Power Equipment costs Building occupancy $0.60 0.20 0.40 1.30 Total overhead per unit $3.40 You loarm that equipment costs and building occupancy are foxed and are based on a normal production of 600,000 units per year. Oeher overhead costs are variable. Plant capacity is sufficient to produce 750,000 units per year Labor costs per hour are not expected to change during the year However, the ton supplier has informed EcoSacks that it wil impose a 20 percent price increase at tho start of the coming budget period. No other costs are expected to change. During the coming budget period, EcoSacks expects to sell 540,000 bags. Finished goods inventory is targeted to increase from the current balance of 120,000 units to 210,000 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 Production Budget For the Coming Year Total needs Units to be produced b. Estimate the materials, labor, and overhead costs for the coming year. (Do not round intermediate calculations.) Overhead costs eBook & R

Explanation / Answer

Answer a. ECOSACKS Production Budget For the Coming Year (In Units) Sales (In Units)              540,000 Ending Finished Inventory              210,000 Total Needs              750,000 Less: Beginning Finished Inventory           (120,000) Units to be Produced              630,000 Answer b. Direct Materials: Cotton - 630,000 Bags X 1.0 Yard X $4          2,520,000 Canvas - 630,000 Bags X 0.20 Yard X $12          1,512,000 Total Direct Material Costs          4,032,000 Direct Labor - 630,000 Bags X 0.50 Hrs X $18          5,670,000 Overhead: Indirect Labor - 630,000 Bags X $0.60              378,000 Indirect Materials - 630,000 Bags X $0.20              126,000 Power - 630,000 Bags X $0.40              252,000 Equipment Costs - 600,000 Bags X $1.30              780,000 Building Occupancy - 600,000 Bags X $0.90              540,000 Total Overhead Costs          2,076,000

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