Question

The Hale Company finished their sales projections for the coming year. The company produces one product. Part of next year’s sales projections are as follows:

	July	August	September	October	November
Projected Sales in units	100,000	125,000	156,000	165,000	185,000

The budget committee has also compiled the following information on inventories:

	Raw materials	Work-in-Process	Finished Goods
Ending Balance, June	22,000 lbs	None	13,000 units
Desired ending levels (monthly)	5% of next month’s production needs	None	12% of next month’s sales

Engineering has developed the following standards upon which the production budgets will be developed:

Item	Standard
Materials usage	5 lbs per unit
Material price per pound	$1.50 per pound
Labor usage	0.4 hours per unit
Labor rate	$30 per hour
Machine hours	3 machine hours per unit

The Hale Company uses a modified allocation method for allocating overhead costs. The rates that will be used in the coming year are as follows:

Overhead item	Allocation rate
Utilities	$0.50 per machine hour
Inspection	$10 per unit produced
Factory supplies	$2 per unit produced
Depreciation	$35,000 per month
Supervision	$12,000 per month

The Hale Company
Production Budget
Particulars	July	August	September	October
Sales	100,000	125,000	156,000	165,000
Desired EI (12% of next months sales)	15,000	18,720	19,800	22,200
Units Needed	115,000	143,720	175,800	187,200
Less Beginning Inventory	13,000	15,000	18,720	19,800
Production Needed:	102,000	128,720	157,080	167,400
(2) Prepare the Matierals Purchase Budget (Monthly)
The Hale Company
Materials Purchases Budget
Particulars	July	August	September	October
Production in Units	102,000	128,720	157,080	167,400
RM Standard per unit	5	5	5	5
Productions Needs in RM	510,000	643,600	785,400	837,000
Desired EN (5% of next month production needs)	32,180	39,270	41,850
RM Needed	542,180	682,870	827,250
Less Beginning Inventory	22,000	32,180	39,270
RM Purchases	520,180	650,690	787,980
Price per unit	1.5	1.5	1.5
Budgeted Purchases in $'s	780,270	976,035	1,181,970
(3) Prepare the Direct Labor Budget (Monthly)
The Hale Company
Direct Labor Budget
Particulars	July	August	September
Production in Units	102,000	128,720	157,080
Labor hours per unit	0.4	0.4	0.4
Total Labor Hours	40,800	51,488	62,832
Labor Rate per Hour	30	30	30
Total Budgeted Labor (in $)	1,224,000	1,544,640	1,884,960
(4) Prepare the Overhead Budget (Monthly)
The Hale Company
Overhead Budget
Particulars	July	August	September
Production in Units	102,000	128,720	157,080
Standard Variable Manufacturing Overhead Costs	13.5	13.5	13.5
Variable Manufacturing Overhaed Costs	1,377,000	1,737,720	2,120,580
Fixed Manufacturing Overhead Costs	47,000	47,000	47,000
Budgeted Manufacturing Overhead	1,424,000	1,784,720	2,167,580

Required:

For the quarter (quarter totals only), prepare the:

5. Cost of goods manufactured budget

Answer 1

Workings