4.
EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production.
Direct materials per bag | ||
1.50 yard cotton at $4.50 per yard | ||
0.70 yards canvas finish at $12.50 per yard | ||
Direct labor per bag | ||
1.00 hour at $18.50 per hour | ||
Overhead per bag | ||
Indirect labor | $ | 1.10 |
Indirect materials | 0.70 | |
Power | 0.90 | |
Equipment costs | 1.80 | |
Building occupancy | 1.40 | |
Total overhead per unit | $ | 5.90 |
You learn that equipment costs and building occupancy are fixed and are based on a normal production of 650,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 850,000 units per year.
Labor costs per hour are not expected to change during the year. However, the cotton supplier has informed EcoSacks that it will impose a 20 percent price increase at the start of the coming budget period. No other costs are expected to change.
During the coming budget period, EcoSacks expects to sell 590,000 bags. Finished goods inventory is targeted to increase from the current balance of 170,000 units to 260,000 units to prepare for an expected sales increase the year after next as a result of legislation in several states regarding plastic bags. Production will occur evenly throughout the year. Inventory levels for cotton and canvas are expected to remain unchanged throughout the year. There is no work-in-process inventory.
Required:
a. Prepare a production budget for the coming
year.
b. Estimate the materials, labor, and overhead
costs for the coming year.
Production Budget | |
Beginning Stock | 170,000 |
Expected Sales | 590,000 |
Closing stock | (260,000) |
Budgeted Production | 500,000 |
Part-b | |||
Cost Elements | Quantity | Per Unit Cost | Amount |
Direct Materials | |||
Cotton | (1.5*500000)=750000 | ($4.50*1.20)=$5.4 | $405,000.00 |
Canvas Finish | 0.70*500000=350000 | $12.50 | $4,375,000.00 |
Total Material Cost | $4,780,000.00 | ||
Direct labour | (500000*1 Hour)=500000 | $18.50 | $9,250,000.00 |
Total Laboour Cost | $9,250,000.00 | ||
Overhead Cost | |||
Indirect labour | 500000 | $1.10 | $550,000.00 |
Indirect Materials | 500000 | $0.70 | $350,000.00 |
Power | 500000 | $0.90 | $450,000.00 |
Equipment Cost | 650000 | $1.80 | $1,170,000.00 |
Building occupancy | 650000 | $1.40 | $910,000.00 |
Total Overhead Cost | $3,430,000.00 | ||
Total production Cost | $17,460,000.00 |
4. EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year...
EcoSacks manufactures cloth shopping bags. The controller is
preparing a budget for the coming year and asks for your
assistance. The following costs and other data apply to bag
production:
You learn that equipment costs and building occupancy are fixed
and are based on a normal production of 630,000 units per year.
Other overhead costs are variable. Plant capacity is sufficient to
produce 810,000 units per year.
Labor costs per hour are not expected to change during the year.
However,...
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In an attempt to improve budgeting, the controller for Meliore,
Inc., has developed a flexible budget for overhead costs. Meliore,
Inc., makes two types of products, the standard model and the
deluxe model. Meliore expects to produce 300,000 units of the
standard model and 140,000 units of the deluxe model during the
coming year. The standard model requires 0.05 direct labor hour per
unit, and the deluxe model requires 0.08. The controller has
developed the following cost formulas for each...
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