Question

1. Operating Budgets (50 points) Lubriderm Corporation has the following budgeted unit sales for the next six-month period: Month June July August September October November Unit Sales 90,000 120,000 210,000 150,000 180,000 120,000 There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month. Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds. Direct labor hours required for each unit are 1.5. The wage rate is $18 per direct labor hour. Both fixed and variable overhead are allocated to units produced using direct labor hours. The variable overhead rate is $5 per direct labor hour. Fixed overhead is budgeted for $1,566,000 for the year. Total budgeted direct labor hours for the year are 2,610,000. a. Prepare production budgets in units for July, August, and September and the third quarter in total. b. Prepare a purchases budget in pounds for July, August, and September and the third quarter in total, and give total purchases in both pounds and dollars for each month and the third quarter in total c. Prepare a direct labor budget for July, August and September and the third quarter in total. d. Prepare an overhead budget for July, August and September and the third quarter in total. e. Prepare cost of goods sold budget for the third quarter.

Answer 1

Units to be produced in a month = Sales - Opening stock + Closing Stock

Units to be produced in June = 90000 - 30000 + 24000 = 84000 units

(24000 being closing stock to be maintained i.e. 20% of 120,000 units)

Units to be produced in October = 180000 - 36000 + 24000 = 168000 units

(24000 being closing stock to be maintained i.e. 20% of 120,000 units)

@ Braduction Budget - July A 120,000 Lees: Opening Stock (20000) - (24000) Add: Closing stock 4.2000 [ 20% of next {210000 x2011] menthe sale ] Aug left. 210,000 150,000 (42000) (30000) 30000 + 136000 {180,0820:13 { 15000020113 TOTAL 480,000 (24000) 36000 Units to be produced 138000 198000 156000 492000

Tune July [ Units to be produced 84000 138000 Material rewired (X5] 420,000 690.000 hell Opening Stock (15000) (207000) | 207000 297000 [30% of the needs {690000 for next month? Unite to be furchased 1612000 780000 (in hounds) Total Purchase (in $.) 4896000. 6240.000 Aug 198000 990,000 (297000 234000 September 156000 780,000 (234000 252000 Ş (68000 x 51 I X3015 798000 927000 7.416000 6,384,000

© Direct Labor Budget 7 July Units to be produced 138000 Direct Salor hore hequred 207000 (x1.50) Aug 198000 297000 Sept. 156000 234000 TOTAL 49 2000 738000 balon Rate @ $18 ter hr 3,726000 5346000 4212000 13284.000

@ Overhead Budget July 207000 Aug 297000 Sept. 234000 Direct labon hrs Variable overhead @ $5 per hr. TOTAL TOTAL 738000 3,690,000! 442800 1035,000 124200 1,485,000 1,170,000 178200 140400 Fixed Overhead (Op.bo bih * .. Overhead Budget USAKDO 1663200 1310,400 4,132,800 1159200 waliom * Salculation of fioned overhead Rate 1 7 $1566,000 2610,000 hrs = $0.60 her hr