Question

Exercise 8-15 Direct Labor and Manufacturing Overhead Budgets [LO8-5, LO8-6]

The Production Department of Hruska Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Units to be produced	10,400	9,400	11,400	12,400

Each unit requires 0.25 direct labor-hours and direct laborers are paid $12.00 per hour.

In addition, the variable manufacturing overhead rate is $1.70 per direct labor-hour. The fixed manufacturing overhead is $84,000 per quarter. The only noncash element of manufacturing overhead is depreciation, which is $24,000 per quarter.

Required:

1. Calculate the company’s total estimated direct labor cost for each quarter of the upcoming fiscal year and for the year as a whole.

2&3. Calculate the company’s total estimated manufacturing overhead cost and the cash disbursements for manufacturing overhead for each quarter of the upcoming fiscal year and for the year as a whole.

Answer 1

1) Estimated direct labor hours = Units to be produced x Direct labor hours per unit; Estimated direct labor cost = Estimated direct labor hours x Direct labor rate per hour. Hruska Corporation Direct labor cost budget For each quarter of the fiscal year and for the year as a whole 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Whole year Units to be produced 10,400 9,400 11,400 12,400 4 3,600 --> (a) Direct labor hours per unit 0.25 0.25 0.25 0.25 0.25 --> (b) Estimated direct labor hours 2,600 2,350 2,850 3,100 10,900 --> (c) = (a) x (b) Direct labor rate per hour $12.00 $12.00 $12.00 $12.00 $12.00 --> (d) Estimated direct labor cost $31,200 $28,200 $34,200 $37,200 $130,800 --> (c) x (d)

2&3) Estimated variable overhead cost = Estimated direct labor hours x Variable overhead rate per hour; Estimated total manufacturing overhead cost = Estimated variable overhead cost + Estimated fixed overhead cost; Estimated cash disbursement for overhead cost = Total estimated mfg. overhread cost - Non-cash overhead cost (Depreciation). Hruska Corporation Manufacturing overhead and cash disbursement budgeet For each quarter of the fiscal year and for the year as a whole 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Whole year Estimated direct labor hours 2,600 2,350 2,850 3,100 10,900 --> (p) [As calculated in Part-1] Variable overhead rate per hour $1.70 $1.70 $1.70 $1.70 $1.70 --> (q) Estimated variable overhead cost $4,420 $3,995 $4,845 $5,270 $18,530 --> (p) x (9) Plus fixed overhead cost $84,000 $84,000 $84,000 $84,000 $336,000 2) Estimated total mfg. overhead cost $88,420 $87,995 $88,845 $89,270 $354,530 Deduct non-cash mfg. overhead cost $24,000 $24,000 $24,000 $24,000 $96,000 [Depreciation cost] 3) Cash disbursement for overhead cost $64,420 $63,995 $64,845 $65,270 $258,530