Question

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

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 $

Homework Answers

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

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