Question

d. actual costs are more than standard costs QUESTIONS Chapter 22 Workout Question Part A Brown Enterprises is creating its budgets for the upcoming year. The following details are known about Brown's production processes • One finished unit requires three ounces of direct materials. An ince of direct materials costs $30 per ounce . By company policy Brown maintains raw materials inventories equal to 20 percent of the following month's production requirements • All materials are paid for in cash upon purchase fle not materials are bought on account . For direct labor, one finished unit requires 2 workers to each work 2 direct labor hours. Currently Brown pays $25 per direct laborhout • All manufacturing overhead costs are foxed costs. The total fixed MOH Cost to Brown is 51.100.000 per month of this 51.100.000 per month $350.000 is factory depreciation expense. The remaining fixed MOH Costs are paid using cash during the month of the expenditure. A company accountant has already prepared the direct labor budgets the first quarter in 2015. Budgeted direct labor costs are 1979.500 infanuary 31.107.000 in February and 51.245.000 in March How much is the dollar value of February's budgeted direct material purchases the how much cash will Brown pay out in February for its materials purchases? Do not include a dollar sign in your answer and round to the penny.

Answer 1

Answer:-

Calculation of Ending Inventory of Raw Material in February Month

Direct Labor Cost in March = $ 1,245,000

Direct Labor Cost per unit = 2 workers * 2 direct labor hours * $ 25 per direct labor hour = $ 100

Hence number of units produced in March = 1245000/100 = 12,450

Now, 1 finished unit requires 3 ounces of direct material. So 12,450 units will require 37,350 ounces of direct material.

The ending inventory of february is to be 20% of march's production requirements. Which means we have to maintain an ending inventory of 7,470 ounces of raw material [37,350*20/100].

Calculation of Consumption of Raw Material in February Month:-

Direct Labor Cost in March = $ 1,107,000

Direct Labor Cost per unit = 2 workers * 2 direct labor hours * $ 25 per direct labor hour = $ 100

Hence number of units produced in March = 1107000/100 = 11,070

Raw Material comsumed for production of 11,070 units = 33,210 ounces [11070*3]

Calculation of Opening Inventory in February Month:-

Opening Inventory of February = Ending Inventory of January = 20% of Raw Material Consumed in February

= 33210*20/100 = 6,642 Ounces

Direct Material Purchase Budget for February:-

Opening Inventory	6642
+ Purchases {Balancing Figure}	34038
- Consumption	33210
= Ending Inventory	7470
Raw Material Purchase Cost [34038*30]	1,021,140

Hence the dollar value and cash that Brown will have to pay out in February for its Material Purchases is 1,021,140