Question

Q3. Donnegal Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2014. January February March April May Estimated unit sales 12,000 14,000 10,000 11,000 11,000 Sales price per unit $50.00 $47.50 $47.50 $47.50 $47.50 Direct labor hours per unit 2.0 2.0 1.5 1.5 1.5 Wage per direct labor hour $8.00 $8.00 $8.00 $9.00 $9.00 Donnegal has a labor contract that calls for a wage increase to $9.00 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1. Donnegal expects to begin the year with 17,600 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month's sales, plus 40% of the second following month's sales. Instructions Prepare a production budget and a direct labor budget for Donnegal Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours.

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Answer 1

Estimated unit Sales Desired ending Inventory Total Needs Less: Beginning Inventory Unit produced Donnegal Company Production Budget January February 12,000 14,000 18,000 14,400 30,000 28,400 17,600 18,000 12,400 10,400 March 10,000 15,400 25,400 14,400 11,000 Total 36,000 15400 51,400 17,600 33,800 working note: Calculation of ending Inventory For January 100% of February Sales 40% of March Sales Total 100% of 14,000 40% of 10,000 14000 4,000 18,000 For February 100% of March Sales 40% of April Sales Total 100% of 10,000 40% of 11,000 10000 4,400 14,400 For March 100% of April Sales 40% of May Sales Total 100% of 11,000 40% of 11,000 11000 4,400 15,400 Donnegal Company Direct Labor Budget January February March Total 12,400 2 10,400 2 11,000 1.5 Unit produced (From Production budget) Direct labor hour per unit Total direct labor hours needed for production Wages per direct labor hour Total Direct labor cost 24,800 20,800 16,500 $8 $198,400 $8 $166,400 $8 $132,000 $496,800