Question

Evergreen Corporation is preparing the master budget for the third quarter ending March 31, 2009.  It sells a single product for $20 a unit.  Sales are 25% cash and 75% credit.  The credit sales are collected 30% in the month of the sale and the remaining 70% is collected in the next month.  No credit sales occurred in December 2008. The December 31 inventory of finished goods is 15,000 units and projected sales are 20,000, 55000, 65,000, 75,000, and 85,000 units for the first  months of the year.  The desired ending inventory for each month is 35% of the next month's sales. The inventory of Finished Goods expected to be on hand on April 30 is 10,500 units.  Each Finished Unit requires 2 kilograms of materials at a cost of $1.00 per kilo and it takes 15 minutes to complete one unit.  Evergreen anticipates having 20,000 kilos of materials on hand at December 31, 2008.  The company requires 15% of the next month production materials needs to be available before the start of the month.  Labour is paid at the rate of $9.00 per hour and is paid when incurred.  Production overhead is incurred based on units of production and costs $1.50 per unit. Sixty percent of the purchases are paid in the month of purchase and 40% are paid in the following month.  Purchases in December 2008 were $232,500.

Operating expenses are paid in the month incurred and consist of sales commissions (8% of sales), shipping cost (4% of sales), office salaries of $15,000 a month, advertising of $2,800 per month,  and amortization of $3,200 per month, and other miscellaneous expenses of $4,500 per month.  The cash balance must not be negative. The beginning cash balance is $48,000.  Loans are obtained at the end of the month in which a cash shortage occurs and are made in even multiples of $1,000.  Interest is 1% per month based on the beginning-of-month loan balance and must be paid at the end of each month when the loan is repaid.   Evergreen paid $4,000 in cash dividends in January and purchased land for $150,000 in March paying cash.

				Direct Labour Budget
			January	February	March	TOTAL
Production Units
Labour hours / unit
Labour Hours Required
Hourly Rate
Direct Labour Cost

Answer 1

Calculate direct labor budget

	January	February	March	Total
Production units	24250	58000	68500	151250
Labour hours / unit	15/60 = 0.25	0.25	0.25	0.25
Labour Hours Required	6062.50	14500	17125	37687.50
Hourly Rate	9	9	9	9
Direct Labour Cost	54562.50	130500	154125	339187.5

Production budget

	January	February	March	Total	April
Sales	20000	55000	65000	140000	75000
Add: Desired end. Inventory	19250	22750	26250	26250	29750
Total Needs	39250	77750	91250	166250	104750
Less Beg. Inventory	-15000	-19250	-22750	-15000	-26250
Units to be produced	24250	58500	68500	151250	78500