Question

The sales projection of a certain company for the next year of operations will be 15,000 units. Currently, the company has 1,000 units in inventory. Understanding that it is a lot of inventory, the company plans to reduce the ending inventory for the next year of operations to 60% of the current amount. On the other hand, the company wants to project its conversion costs for the coming year and plan how to reduce them. Currently, these costs represent an average of $ 55 / unit to be produced, of which 40% represent direct labor. Required: Calculate the production budget in units (5 points). Calculate the direct labor cost budget (5 points).

Answer 1

Given data:

The sales projection of a certain company for the next year of operations will be 15,000 units.

Beginning inventory = 1000 units

Desired ending inventory = company plans to reduce the ending inventory for the next year of operations to 60% of the current amount.

= 1000 * 60% = 600 units

Production Budget

Sales in units	15000
Add: Desired ending inventory, units	600
Total units needed	15600
Less: Beginning inventory, units	1000
Units required to produce	14600

Calculate the direct labor cost budget

Given,

Conversion cost = $55 per units

* Conversion cost is the sum of direct labor cost plus overhead cost.

Direct labor cost per units = 40% of conversion cost = 55 * 40% = $22 per units

Direct labor cost budget

Units required to produce	14600
* Direct labor cost per units	$22
Total direct labor cost (14600 * 22)	$321200