Question

Marge Manufacturing has the following information available for the month: • Budgeted production is 400,000 units and the firm’s selling price per unit is $25. • Each unit produced is budgeted to require 2 ounces of material B at a cost of $2 per ounce and 0.25 direct labor hours at a cost of $30 per hour

Instead of just giving an answer, it would be great if you can explain how to do it/why

3. Marge Manufacturing has the following information available for the month: Budgeted production is 400,000 units and the firm's selling price per unit is $25 Each unit produced is budgeted to require 2 ounces of material B at a cost of $2 per ounce and 0.25 direct labor hours at a cost of $30 per hour Beginning inventory for material B is 100,000 ounces and budgeted ending inventory for material B is 200,000 ounces Budgeted ending finished goods inventories are 40,000 units and beginning finished goods inventories are 30,000 units The budgeted variable overhead rate is $3.50 per unit produced and budgeted fixed overhead costs are $100,000. Fixed overhead costs consist entirely of depreciation Budgeted fixed SG&A is $500,000, including $175,000 of depreciation. There is no budgeted variable SG&A. a. What is budgeted revenue for the month?

b. How many ounces of material B does the firm plan to purchase during the month?

c. What is the firm’s budgeted breakeven point (in units)?

d. What is budgeted total overhead?

Answer 1

a) For calculating budgeted revenue for the month we need to calculate budgeted sales for the month which is shown as follows:-

Calculation of Budgeted Revenue for the Month (in units)

Beginning Inventory of Finished Goods	30,000
Add: Budgeted Production	400,000
Total units available	430,000
Less: Budgeted Ending Inventory of Finished Goods	40,000
Budgeted Sales in units	390,000
Budgeted Selling price per unit	$25
Budgeted Revenue for the Month (390,000 units*$25)	$9,750,000

Therefore budgeted revenue for the month is $9,750,000.

b) Total ounces of material required for production = Budgeted production*Ounces required per unit

= 400,000 units*2 ounces = 800,000 ounces

Calculation of material B required to be purchase (in ounces)

Material required for production	800,000
Add: Budgeted Ending Inventory for Material B	200,000
Total material required	1,000,000
Less: Beginning Inventory for Material B	100,000
Material required to purchase	900,000

Therefore 900,000 ounces of material B required to purchase during the month.

c) Budgeted breakeven point (in units) = Total Budgeted Fixed Cost/Budgeted Contribution Margin per unit

Calculation of Total Budgeted Fixed Cost (Amounts in $)

Budgeted Fixed Overhead	100,000
Budgeted Fixed Selling and Administration exp	500,000
Total Budgeted Fixed Cost	600,000

Calculation of Budgeted Contribution Margin per unit (Amounts in $)

Selling Price per unit	25.00
Variable cost per unit:
Material B (2 ounces per unit*$2)	(4.00)
Direct Labor cost (0.25 hrs*$30)	(7.50)
variable Overhead cost	(3.50)
Contribution Margin per unit	10.00

Budgeted break even point (in units) = $600,000/10.00 = 60,000 units

Therefore firm's budgeted break even point (in units) is 60,000 units.

d) Total Variable Overhead = Units produced*Variable overhead cost per unit

= 400,000 units*$3.50 = $1,400,000

Budgeted Total Overheads = Fixed Overhead+Variable Overhead

= $100,000+$1,400,000 = $1,500,000