Question

PA8-4 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 $46. Wesley expects the following unit sales: January February March April May 3,800 4,000 4,500 4,300 3,700 Wesley's ending finished goods inventory policy is 25 percent of the next month's sales. Suppose each handisaw takes approximately 60 hours to manufacture, and Wesley pays an average labor wage of $22 per hour. Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $5.00 each. The company has an ending raw 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: 1. Compute the following for the first quarter: (Do not round your intermediate calculations.) January February March 1st Quarter total 1. 2. Budgeted Sales Revenue Budgeted Production in Units Budgeted Cost of Raw Material Purchases for the Plastic Housings Budgeted Direct Labor Cost

Answer 1

Solution 1:

Budgeted Sales Revenue - Wesley Power
Particulars	January	February	March	1st Quarter Total
Expected sales units	3800	4000	4500	12300
Selling price per unit	$46.00	$46.00	$46.00	$46.00
Budgeted Sales Revenue	$174,800.00	$184,000.00	$207,000.00	$565,800.00

Solution 2:

Production Budget in Units - Wesley Power Tools For First quarter
Particulars	January	Feburary	March	1st Quarter Total	April
Sales	3800	4000	4500	12300	4300
Desired ending inventory (25% of next month sales)	1000	1125	1075	1075	925
Total needs	4800	5125	5575	13375	5225
Less: Beginning inventory	950	1000	1125	950	1075
Units produced	3850	4125	4450	12425	4150

Solution 3:

Direct material purchase budget (Plastic housing) -Wesley Power Tools
Particulars	January	Feburary	March	1st Quarter Total
Budgeted Production units	3850	4125	4450	12425
Direct material per unit	1	1	1	1
Production needs	3850	4125	4450	12425
Desired ending inventory (20% of following month production requirements)	825	890	830	830
Total needs	4675	5015	5280	13255
Less: Beginning inventory	770	825	890	770
Direct materials to be purchased (Plastic housing)	3905	4190	4390	12485
Cost per plastic housing	$5.00	$5.00	$5.00	$5.00
Budgeted cost of purchases	$19,525.00	$20,950.00	$21,950.00	$62,425.00

Solution 4:

Budgeted labor cost budget - Wesely Power Tool
Particulars	January	Feburary	March	1st Quarter Total
Budgeted Production units	3850	4125	4450	12425
Direct labor hours per unit	0.60	0.60	0.60	0.60
Budgeted direct labor hours	2310	2475	2670	7455
direct labor cost per hour	$22.00	$22.00	$22.00	$22.00
Budgeted direct labor cost	$50,820.00	$54,450.00	$58,740.00	$164,010.00