Question

Black Diamond Company produces snow skis. Each ski requires 2 pounds of carbon fiber. The company’s management predicts that 5,600 skis and 6,600 pounds of carbon fiber will be in inventory on June 30 of the current year and that 156,000 skis will be sold during the next (third) quarter. A set of two skis sells for $360. Management wants to end the third quarter with 4,100 skis and 4,600 pounds of carbon fiber in inventory. Carbon fiber can be purchased for $21 per pound. Each ski requires 0.5 hours of direct labor at $26 per hour. Variable overhead is applied at the rate of $14 per direct labor hour. The company budgets fixed overhead of $1,788,000 for the quarter.
Required: 1. Prepare the third-quarter production budget for skis. BLACK DIAMOND COMPANY Production Budget (in units) Third Quarter Required units of available production Units to be manufactured

Answer 1

Ans. 1	BLACK DIAMOND COMPANY
	PRODUCTION BUDGET
	Third Quarter
	Expected units to be sold (total)	156000
	Add: Desired ending inventory units	4100
	Total required units	160100
	Less: Beginning inventory units	-5600
	Units to be produced	154500
Ans. 2	BLACK DIAMOND COMPANY
	Direct Materials Budget
	Third Quarter
	Budgeted production (units)	154500
	(X) Materials requirement per unit	2
	Materials needed for production	309000
	Add: Budgeted ending inventory	4600
	Total materials requirements	313600
	Less: Budgeted beginning inventory	-6600
	Materials to be purchased	307000
	(X) Direct materials per unit	$21.00
	Total budgeted direct materials	$6,447,000
Ans. 3	BLACK DIAMOND COMPANY
	Direct Labor Budget
	Third Quarter
	Budgeted production (units)	154500
	(X) Direct labor hours per unit	0.50
	Total labor hours needed	77250
	(X) Wages rate per hour	$26
	Budget direct labor cost	$2,008,500
	*Total labor hours needed = units to be produced * direct labor hours
	*Budgeted direct labor cost = Total labor hours needed * Wages rate per hour
Ans. 4	BLACK DIAMOND COMPANY
	Factory Overhead Budget
	Third Quarter
	Total labor hours needed	77250
	(X) Variable overhead rate	$14.00
	Budgeted variable overhead   (a)	$1,081,500
	Budgeted fixed overhead   (b)	$1,788,000
	Budgeted total overhead (a+b)	$2,869,500