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 2017. January February March April May Estimated unit sales 10,400 11,100 8,000 9,000 8,600 Sales price per unit $50.80 $47.90 $47.90 $47.90 $47.90 Direct labor hours per unit 2.3 2.3 1.6 1.6 1.6 Wage per direct labor hour $7.00 $7.00 $7.00 $8.00 $8.00 Lowell has a labor contract that calls for a wage increase to $8.00 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 15,950 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 50% of the second following month’s sales.

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

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

Solution 1:

Production Budget - Lowell Company
Particulars	January	February	March	Total
Sales units	10400	11100	8000	29500
Add: Desired ending inventory (100% of next month sales + 50% of 2nd following month)	15100	12500	13300	13300
Less: Opening Inventory	15950	15100	12500	15950
Budgeted Production units	9550	8500	8800	26850

Solution 2:

Direct Labor Budget - Lowell Company
Particulars	January	February	March	Total
Budgeted Production Units	9550	8500	8800	26850
Direct labor hours per unit	2.3	2.3	1.6
Direct labor hour required	21965	19550	14080	55595
Rate per direct labor hours	$7.00	$7.00	$7.00	$7.00
Budgeted direct labor cost	$153,755.00	$136,850.00	$98,560.00	$389,165.00