Question

Santiago’s Salsa is in the process of preparing a production cost budget for May. Actual costs in April were:

Santiago’s Salsa Production Costs April 2017
		29,000
Production		Jars of Salsa
Ingredient cost (variable)		$20,300
Labor cost (variable)		12,760
Rent (fixed)		5,000
Depreciation (fixed)		6,000
Other (fixed)		1,000
Total		$45,060

Using this information, prepare a budget for May. Assume that production will increase to 34,800 jars of salsa, reflecting an anticipated sales increase related to a new marketing campaign.

Santiago's Salsa Budgeted Production Costs May 2017
		34,800
Production		Jars of Salsa
Ingredient cost		$
Labor cost
Rent
Depreciation
Other
Total		$

Does the budget suggest that additional workers/labor hours are needed?

Suppose the wage rate is $20 per hour. How many additional labor hours are needed in May? (Round answer to 0 decimal places, e.g. 5,275.)

Additional labour hours

Calculate the actual cost per unit in April and the budgeted cost per unit in May. (Round answers to 2 decimal places, e.g. 15.20.)

		Cost per unit
Actual cost per unit in April		$
Budgeted cost per unit in May		$

Answer 1

1. Budget for May

Units		34,800
Cost
Ingredient cost	(20,300/ 29,000 x 34,800)	24,360
Labor cost	(12,760/ 29,000 x 34,800)	15,312
Rent		5,000
Depreciation		6,000
Other		1,000
Total		51,672

2. Actual labor hrs in May = Labor cost/ Cost per hr

= 12,760/ 20

= 638 hrs

Labor hrs in May = 15,312/ 20

= 765.60 hrs

Additional hrs required = 765.60 - 638

= 127.60 hrs

3. Actual cost per unit in April = 45,060/ 29,000

= $1.55 per unit

Budgeted cost per unit in May = 51,672/ 34,800

= $1.48 per unit