Question

next month's sales. Prepare ril, May, and June Sales buu Le E22-24 Preparing an operating budget- manufacturing overhead budgets direct materials, direct labor, and Grady, Inc manufactures model airplane kits and projects production at 650, 500 450, and 600 kits for the next four quarters. Direct materials are 4 ounces of plastic per kit and the plastic costs $1 per ounce. Indirect materials are considered insignifi- cant and are not included in the budgeting process. Beginning Raw Materials Inven- tory is 850 ounces, and the company desires to end each quarter with 10% of the materials needed for the next quarter's production. Grady desires a balance of 200 ounces in Raw Materials Inventory at the end of the fourth quarter. Each kit requires 0.10 hours of direct labor at an average cost of $10 per hour Manufacturing over- head is allocated using direct labor hours as the allocation base. Variable overhead is $0.20 per kit, and fixed overhead is $165 per quarter. Prepare Grady's direct materials budget, direct labor budget, and manufacturing overhead budget for the yeat Round the direct labor hours needed for production, budgeted overhead costs, and prede- termined overhead allocation rate to two decimal places. Round other amounts to the nearest whole number

Answer 1

Operating Budget : The budgets concerning the primary operations of a business or a company are called operating budget. Some of the examples of operating budgets are sales budget, production budget, direct materials budget, direct labor budget, manufacturing overhead budget and cost of goods sold budget.

E22-24. Operating Budget

Direct Material Budget

Particulars	1st	2nd	3rd	4th	Year
Budgeted Production in units	650	500	450	600
Direct Materials per unit in ounce	4	4	4	4
Direct Materials Required in ounce	2,600	2,000	1,800	2,400
Add: Desired Ending Direct Material in ounce	850	180	240	200
Direct Materials Purchases in ounce	3,450	2.180	2,040	2,600
Cost per Ounce	$1	$1	$1	$1
Cost of Direct Materials	$3,450	$2,180	$2,040	$2,600	$10,270

Direct Labor Budget

Particulars	1st	2nd	3rd	4th	Year
Budgeted Production in units	650	500	450	600	2,200
Direct Labor Hours per unit	0.10	0.10	0.10	0.10	0.10
Total Direct Labor Hours Required	65	50	45	60	220
Direct Labor Cost per Hour	$10	$10	$10	$10	$10
Total Direct Labor Cost	$650	$500	$450	$600	$2,200

Manufacturing Overhead Cost

Particulars	1st	2nd	3rd	4th	Year
Budgeted Production in units	650	500	450	600	2,200
Variable Overhead per unit	$0.20	$0.20	$0.20	$0.20	$0.20
Total Variable Overhead Cost	$130	$100	$90	$120	$440
Fixed Overhead Cost per Quarter	$150	$150	$150	$150	$600
Total Overhead Cost	$280	$250	$240	$270	$1,040
Direct Labor Hours	65	50	45	60	220
Manufacturing Overhead Cost per DLH					$4.73

E22-25

Cost of Goods Sold Budget

Particulars	1st	2nd	3rd	4th	Year
Beginning Inventory	-	-	-	-	-
Budgeted Sales in Units	650	500	450	600	2,200
Direct Materials @$4 per unit*	$2,600	$2,000	$1,800	$2,400	$8,800
Direct Labor Cost @ $10 per DLH	$650	$500	$450	$600	$2,200
Manufacturing Overhead Cost @ $4.73 per DLH	$307.45	$236.5	$212.85	$283.8	$1,040.6
Cost of Goods Sold	$3,557.45	$2,736.5	$2,462.85	$3,283.8	$12,040.6

*Direct Materials Cost per Unit = Direct Materials per unit X Cost of direct materials

= 4 Ounce per unit X $1 per ounce

Hence   = $4 per unit