Question

HOW DO I CALCULATE?

MCO Leather manufactures leather purses. Each purse requires 3 pounds of direct materials at a cost of $4 per pound and 0.7 direct labor hours at a rate of $10 per hour. Variable manufacturing overhead is charged at a rate of $2 per direct labor hour. Fixed manufacturing overhead is $16,000 per month. The company's policy is to end each month with direct materials inventory equal to 20% of the next month's materials requirement. At the end of August the company had 4,580 pounds of direct materials in inventory. The company's production budget reports the following. Production Budget Units to be produced September 5,400 October 6,800 November 6,200 (1) Prepare direct materials budgets for September and October. (2) Prepare direct labor budgets for September and October (3) Prepare factory overhead budgets for September and October. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare direct materials budgets for September and October. MCO Leather Direct Materials Budget For the Months of September and October September October Budgeted production (units) Materials requirements per unit (lbs.) Materials needed for production (lbs.) Budgeted ending inventory (lbs.) Total materials requirements (lbs.) Budgeted beginning inventory (lbs.) Materials to be purchased (lbs.) Direct material cost per lb. Total budgeted direct materials 0

Answer 1

Solution 1:

MCO Leather Goods
Direct materials Budget
Particulars	September	October
Budgeted Production in units	5400	6800
Units of raw materials needed per unit	3	3
materials needed for production	16200	20400
Add: Budgeted ending inventory (20% of next month)	4080	3720
Total materials requirement	20280	24120
Less: Budgeted Beginning inventory	4580	4080
Materials to be purchased	15700	20040
Direct material cost per lb	$4.00	$4.00
Total budgeted direct material	$62,800	$80,160

SOlution 2:

MCO Leather Goods
Direct Labor Budget
Particulars	September	October
Budgeted Production in units	5400	6800
DL hours required per unit	0.7	0.7
Total direct labor-hours needed	3780	4760
Direct labor rate per hour	$10.00	$10.00
Total Budgeted direct labor cost	$37,800	$47,600

Solution 3:

MCO Leather Goods
Factory Overhead Budget
Particulars	September	October
Total direct labor-hours needed	3780	4760
VOH rate per DL hour	$2.00	$2.00
Budgeted variable overhead	$7,560	$9,520
Budgeted fixed overhead	$16,000	$16,000
Total Budgeted Factory overhead	$23,560	$25,520