Question

Inc. manufactures model airplane kits and projects production at 150, 270, 350, and 700 kits for the next four quarters.

Prepare Kevin's direct materials​ budget, direct labor​ budget, and manufacturing overhead budget for the year. Round the direct labor hours needed for​ production, budgeted overhead​ costs, and predetermined overhead allocation rate to two decimal places. Round other amounts to the nearest whole number.

Direct materials are 7 ounces of plastic per kit and the plastic costs ​$1 per ounce. Indirect materials are considered insignificant and are not included in the budgeting process. Beginning Raw Materials Inventory is 930 ​ounces, and the company desires to end each quarter with 30​% of the materials needed for the next​ quarter's production. Kelvin desires a balance of 210 ounces in Raw Materials Inventory at the end of the fourth quarter. Each kit requires 0.75 hours of direct labor at an average cost of $ 40per hour. Manufacturing overhead is allocated using direct labor hours as the allocation base. Variable overhead is $ 0.75 per​ kit, and fixed overhead is $ 175per quarter.

Begin by preparing

KelvinKelvin​'s

direct materials budget.

Kelvin, Inc.
Direct Materials Budget
For the Year Ended December 31
		First	Second	Third	Fourth
		Quarter	Quarter	Quarter	Quarter	Total
Direct materials (ounces) per kit
Direct materials needed for production
Plus:
Total direct materials needed
Less:
Budgeted purchases of direct materials
Direct materials cost per ounce
Budgeted cost of direct materials purchases

Prepare the direct labor budget. ​(Enter any hours as a decimal to two​ places, X.XX, and round all other amounts to the nearest whole​ number.)

Kelvin, Inc.
Direct Labor Budget
For the Year Ended December 31
		First	Second	Third	Fourth
		Quarter	Quarter	Quarter	Quarter	Total
Direct labor hours needed for production
Budgeted direct labor cost

Prepare the manufacturing overhead budget. ​(Enter all costs and hours as a decimal to two​ places, X.XX. Abbreviations​ used: VOH​ = variable manufacturing​ overhead; FOH​ = fixed manufacturing​ overhead.)

Kelvin, Inc.
Manufacturing Overhead Budget
For the Year Ended December 31
		First	Second	Third	Fourth
		Quarter	Quarter	Quarter	Quarter	Total
VOH cost per kit
Budgeted VOH
Budgeted FOH
Budgeted manufacturing overhead costs
Direct labor hours
Budgeted manufacturing overhead costs
Predetermined overhead allocation rate

Answer 1

Kelvin Inc.
Direct Material Budget
For the Year Ended December 31
	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Budgeted Kits to be produced                                                                           (a)	150	270	350	700	1470
Direct material (ounces) per kit                                                                         (b)	7	7	7	7	7
Direct materials needed for production                                                             (a x b)	1050	1890	2450	4900	10290
Plus: Desired direct materials in ending inventory                                         [Refer working note 1]	567	735	1470	210	2982
Total direct materials needed	1617	2625	3920	5110	13272
Less: Direct materials in beginning inventory                                               [Refer working note 2]	930	567	735	1470	3702
Budgeted purchases of direct materials                                                            (c)	687	2058	3185	3640	9570
Direct materials cost per ounce                                                                        (d)	$1	$1	$1	$1	$1
Budgeted cost of direct materials purchases                                                (c x d)	$687	$2,058	$3,185	$3,640	$9,570

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Kelvin Inc.
Direct Labor Budget
For the Year Ended December 31
	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Budgeted Kits to be produced                         (a)	150	270	350	700	1470
Direct labor hours per unit                              (b)	0.75	0.75	0.75	0.75	0.75
Direct labor hours needed for production       (c = a x b)	112.50	202.50	262.50	525.00	1102.50
Direct labor cost per hour                               (d)	$40	$40	$40	$40	$40
Budgeted direct labor cost                              (c x d)	$4,500	$8,100	$10,500	$21,000	$44,100

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Kelvin Inc.
Manufacturing Overhead Budget
For the Year Ended December 31
	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Budgeted Kits to be produced                 (a)	150	270	350	700	1470
VOH cost per kit                                     (b)	$0.75	$0.75	$0.75	$0.75	$0.75
Budgeted VOH                                        (c = a x b)	$112.50	$202.50	$262.50	$525.00	$1,102.50
Budgeted FOH                                        (d)	$175.00	$175.00	$175.00	$175.00	$700.00
Budgeted manufacturing overhead costs (e = c + d)	$287.50	$377.50	$437.50	$700.00	$1,802.50
Direct labor hours                                    [Extracted from direct labor budget]	112.50	202.50	262.50	525.00	1102.50
Budgeted manufacturing overhead costs					$1,802.50
Predetermined overhead allocation rate      [$1,802.50 / 1,102.50 hours]					$1.63

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Working Note 1 - Calculation of desired ending inventory at the end of each quarter
	First-quarter	Second-quarter	Third-quarter	Fourth-quarter
Budgeted Kits to be produced                                                                           (a)	150	270	350	700
Direct material (ounces) per kit                                                                         (b)	7	7	7	7
Direct materials needed for production                                                             (a x b)	1050	1890	2450	4900
Desired direct materials in ending inventory = 30% of the materials needed for the next​ quarter's production
For first quarter = Second quarter's production needs x 30% = 1,890 x 30%	567
For second quarter = Third quarter's production needs x 30% = 2,450 x 30%		735
For third quarter = Fourth quarter's production needs x 30% = 4,900 x 30%			1,470
For fourth-quarter    [Mentioned in the question]				210

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Working Note 2 - Beginning inventory for each quarter
Note: Ending raw materials inventory quantity for a quarter would become beginning raw materials inventory quantity for the following quarter
For 1st quarter                   [Mentioned in the question]	930	units
For 2nd quarter                     [Ending inventory of 1st quarter]	567	units
For 3rd quarter                     [Ending inventory of 2nd quarter]	735	units
For 4th quarter                     [Ending inventory of 3nd quarter]	1,470	units