Question

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 10,800 2nd Quarter 9,800 3rd Quarter 11,800 4th Quarter 12,800 Units to be produced Each unit requires 0.25 direct labor-hours and direct laborers are paid $13.00 per hour. In addition, the variable manufacturing overhead rate is $1.90 per direct labor-hour. The fixed manufacturing overhead is $88,000 per quarter. The only noncash element of manufacturing overhead is depreciation, which is $28,000 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) Direct Labor cost budget

We will use the labor hour per unit and units to be produced to find out the total direct labor hour

	1st Quarter	2nd Quarter	3rd quarter	4th quarter	Total for year
Units to be produced	10,800	9,800	11,800	12,800	45,200
Direct labor hour per unit	0.25	0.25	0.25	0.25	0.25
Total direct labor hour	2700[10,800*0.25]	2450[9,800*0.25]	2950[11,800*0.25]	3200[12,800*0.25]	11,300
Labor rate per hour	$13	$13	$13	$13	$13
Budgeted labor cost	$35,100[$13*2700]	$31,850[$13*2450]	$38,350[$13*2950]	$41,600[$13*3200]	$146,900

2)overhead budget

	1	2	3	4	Total for year
Direct labor hour	2700	2450	2950	3200	11,300
variable cost per hour	$1.90	$1.90	$1.90	$1.90	$1.90
Total variable overhead	$5,130[2700*1.90]	$4,655[2450*1.90]	$5,605[2950*1.90]	$6,080[3200*1.90]	$21,470
Fixed overhead	$88,000	$88,000	$88,000	$88,000	$352,000
estimated manufacturing overhead cost	$93,130[$5,130+$88,000]	$92,655[$4,655+$88,000]	$93,605[$5,605+$88,000]	$94,080[$6,080+$88,000]	$373,470

2a. Cash disbursement

As depreciation is a non cash expense it will not result in cash outflow so we will deduct it from above estimated overhead cost to derive cash expense.

	1	2	3	4	Total for year
Estimated overhead cost	$93,130	$92,655	$93,605	$94,080	$373,470
Less: Depreciation expense	$28,000	$28,000	$28,000	$28,000	$112,000
cash disbursement for manufacturing overhead	$65,130	$64,655	$65,605	$66,080	$261,470