Question

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.)

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