Question

Mitchell Inc. has gathered the following budgeting information for next year and has asked you to prepare their master budget. Sales for the final quarter of the prior year total 300 units. Expected sales (in units) for the current year are: 270 (Quarter 1), 180 (Quarter 2), 240 (Quarter 3), and 240 (Quarter 4). Sales for the first quarter of the following year total 360 units. The selling price is $610 per unit in the first three quarters of the year, and $640 per unit in the final quarter. а. b. Company policy calls for a given quarter's ending finished goods inventory to equal 90% of the next quarter's expected unit sales. The finished goods inventory at the end of the prior year is 243 units, which complies with the policy. The product's manufacturing cost is $121 per unit, including per unit costs of $52 for materials (4 lbs. at $13 per lb.), $44 for direct labor (2 hours x $22 direct labor rate per hour), $17 for variable overhead, and $8 for fixed overhead. Annual fixed overhead consists, incurred evenly throughout the year, consist of depreciation on production equipment, $3,200; factory utilities, $4,000, and other factory overhead of $888. Company policy also calls for a given quarter's ending raw materials inventory to equal 50% of next quarter's expected materials needed for production. The prior year-end inventory is 378 lbs of materials, which complies with the policy. The company expects to have 720 lbs. of materials in inventory at year-end. The company has no work in process inventory at the end of any quarter. С. Sales representatives' commissions are 14% of sales and are paid in the quarter of the sales. The sales manager's quarterly salary will be $16,000 in the first three quarters of the year, and $17,000 in the final quarter. d. Quarterly general and administrative expenses include $7,000 administrative salaries, rent expense of $4,000 per quarter, insurance expense of $3,000 per quarter, straight- line depreciation of $3,000 per quarter, and 1% monthly interest on the $150,000 long-term note payable (12% annually). е. f. Income taxes will be assessed at 25%, and are paid in the quarter incurred.

Answer 1

Direct Labor Budget
Particulars			Q1	Q2	Q3	Q4	Total
Production Required			189	234	240	348	1011
Direct Labor hours req. per unit			2	2	2	2	2
Total Direct Labor hours req.			378	468	480	696	2022
Direct Labor rate per hour			$      22.00	$        22.00	$        22.00	$        22.00	$        22.00
Total Direct Labor cost			$ 8,316.00	$ 10,296.00	$ 10,560.00	$ 15,312.00	$ 44,484.00

Workings:

	Production Budget
				Current Year				Next Year
	Particulars			Q1	Q2	Q3	Q4	Q1
	Sales			270	180	240	240	360
Add:	Desired Ending Inventory			162	216	216	324
Less:	Beginning Inventory			243	162	216	216
	Production Required			189	234	240	348