Question

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the...

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2020.

January

February

March

April

May

Estimated unit sales

10,700

11,300

8,600

8,200

8,200

Sales price per unit

$50.30

$48.10

$48.10

$48.10

$48.10

Direct labor hours per unit

2.4

2.4

1.5

1.5

1.5

Wage per direct labor hour

$8

$8

$8

$9

$9


Lowell has a labor contract that calls for a wage increase to $9 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1.

Lowell expects to begin the year with 18,610 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 70% of the second following month’s sales.

1. Prepare a production budget for Lowell Company by month and for the first quarter of the year.

2. Prepare a direct labor budget for Lowell Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours. (Round Direct labor hours per unit answers to 1 decimal place, e.g. 52.7.)

Homework Answers

Answer #1

1.

Production Budget
January February March Quarter
Budgeted unit sales 10,700 11,300 8,600 30,600
Add: Ending inventory 17,320 (11,300*100%+8,600*70%) 14,340 (8,600*100%+8,200*70%) 13,940 (8,200*100%+8,200*70%) 13,940
Total requirements 28,020 25,640 22,540 44,540
Less: Beginning inventory 18,610 17,320 14,340 18,610
Budgeted unit production 9,410 8,320 8,200 25,930

2.

Direct Labor Budget
January February March Quarter
Budgeted unit production 9,410 8,320 8,200
Direct labor hours per unit 2.4 2.4 1.5
Budgeted direct labor hours 22,584 19,968 12,300
Direct labor rate per hour $8 $8 $8
Budgeted direct labor costs $180,672 $159,744 $98,400 $438,816
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