Question

PA8-4 (Algo) Preparing Operating Budget Components [LO 8-3a, b, c, d]

Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Each handisaw sells for $44. Wesley expects the following unit sales: January February March 3,600 3,800 4,300 4,100 3,500 April May Wesley's ending finished goods inventory policy is 30 percent of the next month's sales. Suppose each handisaw takes approximately 0.60 hours to manufacture, and Wesley pays an average labor wage of $20 per hour. Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $7.00 each. The company has an ending direct materials inventory policy of 20 percent of the following month's production requirements. Materials other than the housing unit total $4.50 per handisaw. Manufacturing overhead for this product includes $72,000 annual fixed overhead (based on production of 27,000 units) and $1.20 per unit variable manufacturing overhead. Wesley's selling expenses are 7 percent of sales dollars, and administrative expenses are fixed at $18,000 per month. Required: Compute the following for the first quarter: (Round your intermediate calculations to nearest whole dollar.) January February March 1st Quarter total $ 0 0 1. Budgeted Sales Revenue 2. Budgeted Production in Units 3. Budgeted Cost of Direct Materials Purchases for the Plastic Housings 4. Budgeted Direct Labor Cost $ 0 $ 0

Answer 1

SOLUTION:

	JANUARY	FEBRUARY	MARCH	1ST QUARTER TOTAL
BUDGET SALES REVENUE	158400	167200	189200	514800
BUDGET PRODUCTION IN UNITS	3280	3520	3830	10630
BUDGET COST OF RAW MATERIALS PURCHASE FOR PLASTIC HOUSING	23296	25074	26446	74816
BUDGET DIRECT LABOUR COST	39360	42240	45960	127560

WORKING NOTES:

BUDGET SALES REVENUE

	JANUARY	FEBRUARY	MARCH	TOTAL
SALES IN UNIT (a)	3600	3800	4300	11700
SELLING PRICE PER UNIT (b)	44	44	44	44
SALES REVENUE (a * b)	158400	167200	189200	514800

BUDGET PRODUCTION IN UNITS

	JANUARY	FEBRUARY	MARCH	TOTAL
BUDGETED SALES IN UNITS	3600	3800	4300	11700
ADD: PLANNED CLOSING INVENTORY OF RAW MATERIALS (i.e., 20% OF NEXT MONTH SALES)	(3800*20%)= 760	(4300*20%)= 860	(4100*20%)= 820	2440
TOTAL PRODUCTION REQUIRED	4360	4660	5120	14140
LESS: OPERATING FIXED GOODS INVENTORY (i.e., 30% OF CURRENT MONTH SALES)	(3600*30%)= 1080	(3800*30%)= 1140	(4300*30%)= 1290	3510
TOTAL MANUFACTURING UNITS	3280	3520	3830	10630

BUDGET COST OF RAW MATERIALS PURCHASE FOR PLASTIC HOUSING

	JANUARY	FEBRUARY	MARCH	TOTAL
TOTAL MANUFACTURING UNITS	3280	3520	3830	10630
MATERIAL REQUIRED PER UNIT	1	1	1	1
TOTAL PLASTIC HOUSING REQUIRED FOR PRODUCTION	3280	3520	3830	10630
ADD: PLANNED CLOSING INVENTORY OF RAW MATERIALS (i.e., 20% OF NEXT MONTH SALES)	(3520*20%)= 704	(3830*20%)= 766	(3570*20%)= 714	2184
LESS: OPENING RAW MATERIAL	(3280/5MONTHS)= 656	(3520/5MONTHS)= 704	(3830/5MONTHS)= 766	2126
TOTAL RAW MATERIAL OF PLASTIC HOUSING REQUIRED TO BUY	3328	3582	3778	10688
PURCHASE PRICE	7	7	7	7
TOTAL COST OF RAW MATERIAL	23296	25074	26446	74816

BUDGET DIRECT LABOUR COST

	JANUARY	FEBRUARY	MARCH	TOTAL
TOTAL MANUFACTURE UNIT	3280	3520	3830	10630
PER UNIT LABOUR HOUR	0.60	0.60	0.60	0.60
TOTAL LABOUR HOUR REQUIRED	1968	2112	2298	6378
PER LABOUR HOUR COST	20	20	20	20
TOTAL LABOUR COST	39360	42240	45960	127560

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