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Accounting Question Exercise 23-10 Lowell Company makes and sells artistic frame

ID: 2735247 • Letter: A

Question

Accounting Question Exercise 23-10

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2017. January February March April May Estimated unit sales 10, 000 11,000 8,000 8,000 8,000 Sales price per unit $50.00 $47.00 $47.00 $47.00 $47.00 Direct labor hours per unit 2.0 2.0 1.5 1.5 1.5 Wage per direct labor hour $7.00 $7.00 $7.00 $8.00 $8.00 Lowell has a labor contract that calls for a wage increase to $8.00 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1. Lowell expects to begin the year with 14,400 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month's sales, plus 40% of the second following month's sales. Prepare a production budget for Lowell Company by month and for the first quarter of the year. Prepare a direct labor budget for Lowell Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours. (Round Direct labor hours per unit answers to 1 decimal place, e.g. 52.7.)

Explanation / Answer

Answer (1).

                                                                           Lowell Company

                                                                           Production Budget

                                                                           For the quarter ending March 31, 2017

Jan

Feb

March

Total

Sales in units

10000

11000

8000

29000

Add: Desired ending inventory

            100% of following month sales

            40% of second following month sale

11000

3200

(8000*40%)

8000

3200

(8000*40%)

8000

3200

(8000*40%)

36600

Total Needs

24200

22200

19200

65600

Less: Beginning inventory

14400

14200

11200

39800

Production units

9800

8000

8000

25800

Note: Beginning inventory of the month is closing inventory of previous month.              

Answer ( 2).

                                                                          Lowell Company

                                                                           Direct Labor Budget

                                                                           For the quarter ending March 31, 2017

Jan

Feb

March

Total

Production in units

9800

8000

8000

Direct labor hour per unit

2

2

1.5

Total labor hours

19600

16000

12000

Rate per hour

7

7

7

Total direct labor($)

137200

112000

84000

333200

Jan

Feb

March

Total

Sales in units

10000

11000

8000

29000

Add: Desired ending inventory

            100% of following month sales

            40% of second following month sale

11000

3200

(8000*40%)

8000

3200

(8000*40%)

8000

3200

(8000*40%)

36600

Total Needs

24200

22200

19200

65600

Less: Beginning inventory

14400

14200

11200

39800

Production units

9800

8000

8000

25800

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