Concept explainers
Preparing an operating budget—direct materials, direct labor, and manufacturing
Learning Objective
3
3rd Qtr.
OH
$255.00
Grady, Inc manufactures model airplane kits and projects production at 650,500,450, and 600 kits for the next four quarters. Direct materials are 4 ounces of plastic per kit and the plastic costs $1 per ounce. Indirect materials are considered insignificant and are not included in the budgeting process. Beginning Raw Materials Inventory is 850 ounces, and the company desires to end each quarter with 10% of the materials needed for the next quarter's production. Grady desires a balance of 200 ounces in Raw Materials Inventory at the end of the fourth quarter. Each kit requires 0.10 hours of direct labor at an average cost of $10 per hour. Manufacturing overhead is allocated using direct labor hours as the allocation base. Variable overhead is $0.20 per kit, and fixed overhead is $165 per quarter. Prepare Grady's direct materials budget, direct labor budget, and manufacturing overhead budget for the year. Round the direct labor hours needed for production, budgeted overhead costs, and predetermined overhead allocation rate to two decimal places. Round other amounts to the nearest whole number.
Note: Exercise E22-24 must be completed before attempting Exercise E22-20.
Want to see the full answer?
Check out a sample textbook solutionChapter 22 Solutions
Horngren's Accounting (12th Edition)
- Refer to Cornerstone Exercise 8.2 for the production budgets for practice balls and match balls. Every practice ball requires 0.7 square yard of polyvinyl chloride panels, one bladder with valve (to fill with air), and 3 ounces of glue. FlashKicks policy is that 20 percent of the following months production needs for raw materials be in ending inventory. Beginning inventory in January for all raw materials met this requirement. Required: 1. Construct a direct materials purchases budget for each type of raw materials for the practice ball line for January and February of the coming year. 2. What if FlashKick decreased the ending inventory percentage to 15 percent of the next months production needs? What impact would that have on the direct materials purchases budgets prepared in Requirement 1? Refer to Cornerstone Exercise 8.1, through Requirement 1. FlashKick requires ending inventory of product to equal 20 percent of the next months unit sales. Beginning inventory in January was 3,100 practice soccer balls and 400 match soccer balls. Required: 1. Construct a production budget for each of the two product lines for FlashKick Company for the first three months of the coming year. 2. What if FlashKick wanted a production budget for the two product lines for the month of April? What additional information would you need to prepare this budget?arrow_forwardRefer to Cornerstone Exercise 8.6. Required: 1. Calculate the total budgeted cost of units produced for Play-Disc for the coming year. Show the cost of direct materials, direct labor, and overhead. 2. Prepare a cost of goods sold budget for Play-Disc for the year. 3. What if the beginning inventory of finished goods was 75,200 (for 16,000 units)? How would that affect the cost of goods sold budget? (Assume Play-Disc uses the FIFO method.) Play-Disc makes Frisbee-type plastic discs. Each 12-inch diameter plastic disc has the following manufacturing costs: For the coming year, Play-Disc expects to make 300,000 plastic discs, and to sell 285,000 of them. Budgeted beginning inventory in units is 16,000 with unit cost of 4.75. (There are no beginning or ending inventories of work in process.) Required: 1. Prepare an ending finished goods inventory budget for Play-Disc for the coming year. 2. What if sales increased to 290,000 discs? How would that affect the ending finished goods inventory budget? Calculate the value of budgeted ending finished goods inventory.arrow_forwardQuestion Content Area I AM NEEDING THE PICTURES ANWSERED THE PASSAGE IS JUST FOR ASSISTANCE TO ANSWER THE QUESTIONS Question Content Area LearnCo LearnCo manufactures and sells one product, an abacus for classroom use, with two models, the Basic model and the Deluxe model. The company began operations on January 1, 20Y1, and is planning for 20Y2, its second year of operations, by preparing budgets from its master budget. The company is trying to decide how many units to manufacture, how much it might spend on direct materials and direct labor, and what their factory overhead expenses might be. In addition, the company is interested in budgeting for selling and administrative costs, and in creating a budgeted income statement showing a prediction of net income for 20Y2. You have been asked to assist the controller of LearnCo in preparing the 20Y2 budgets. Sales Budget The sales budget often uses the prior year’s sales as a starting point, and then sales quantities are revised…arrow_forward
- BUDGETING A BUSINESS SCENARIO - STEP 5 FIXED COST BUDGET Fixed costs budget will be different for every organization and will depend upon what sort of resources are consumed by each entity.. Budg expects her fixed costs and her capital expenditure for the next three months to be as follows: ● ● ● Rent on the new workshop of $3,000 will be paid in January to cover the months of January, February and March. New machinery and tools will cost $15,000 and will be delivered and paid for in January. These new non-current assets will have an expected useful life of five years and should be depreciated on the straight line basis. She anticipates that she will receive and pay an electricity bill in March covering the period 1 January to 15 March. She expects that this bill will be for around $1,500. Budg estimates that the new workshop will use a further $300 of electricity between 16th and 31st March. Each month of operation should be allocated an equal amount of electricity cost. An invoice…arrow_forwardHoward Cooper, the president of Campbell Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal Year 3. Standard rate and variable costs Service rate per hour $ 85.00 Labor cost 37.00 Overhead cost 7.10 Selling, general, and administrative cost Expected fixed costs Facility maintenance Selling, general, and administrative 3.80 $522,000 142,000 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 45,000 hours of services in Year 3. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Campbell charges customers $80 per hour, the firm can achieve 50,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same…arrow_forwardLearn Co Learn Co manufactures and sells one product, an abacus for classroom use, with two models, the Basic model and the Deluxe model. The company began operations on January 1, 20Y1, and is planning for 20Y2, its second year of operations, by preparing budgets from its master budget. The company is trying to decide how many units to manufacture, how much it might spend on direct materials and direct labor, and what their factory overhead expenses might be. In addition, the company is interested in budgeting for selling and administrative costs, and in creating a budgeted income statement showing a prediction of net income for 20Y2. You have been asked to assist the controller of LearnCo in preparing the 20Y2 budgets. Sales Budget The sales budget often uses the prior year's sales as starting point, and then sales quantities are revised for various factors such as planned advertising and promotion, projected pricing changes, and expected industry and general economic conditions.…arrow_forward
- 1. Question Content Area Sales Budget FlashKick Company manufactures and sells soccer balls for teams of children in elementary and high school. FlashKick’s best-selling lines are the practice ball line (durable soccer balls for training and practice) and the match ball line (high-performance soccer balls used in games). In the first four months of next year, FlashKick expects to sell the following: Practice Balls Match Balls Units Selling Price Units Selling Price January 50,000 $8.25 7,000 $16.00 February 58,000 $8.25 8,000 $16.00 March 80,000 $8.25 13,000 $16.00 April 100,000 $8.25 18,000 $16.00 Required: Question Content Area 1. Construct a sales budget for FlashKick for the first three months of the coming year. Show total sales for each product line by month and in total for the first quarter. If required, round your answers to the nearest cent. FlashKick CompanySales BudgetFor the First Quarter of Next Year…arrow_forwardProblem 4: PERT Cost A project requires these activities to be completed and the table below shows the expected time and budgeted cost for each activity. The complete budget using ES times. Suppose the project is on its 10th week. Using this information, determine if the project is on track given that: Activity A is 100% done with a cost of $1,800 Activity B is 100% done with a cost of $6,000 Activity C is 80% done with a cost of $6,000 Activity D is 100% done with a cost of $8,500 Activities E and F have not been started Your assessment of the project including a recommended strategy on the next steps.arrow_forward7. Question Content Area Direct Materials Purchases Budget: Direct Labor Budget Crescent Company produces stuffed toy animals; one of these is “Arabeau the Cow.” Each Arabeau takes 0.20 yard of fabric (white with irregular black splotches) and 10 ounces of polyfiberfill. Fabric costs $3.40 per yard and polyfiberfill is $0.05 per ounce. Crescent has budgeted production of Arabeaus for the next four months as follows: Units October 41,000 November 80,000 December 60,000 January 40,000 Inventory policy requires that sufficient fabric be in ending monthly inventory to satisfy 20 percent of the following month’s production needs and sufficient polyfiberfill be in inventory to satisfy 40 percent of the following month’s production needs. Inventory of fabric and polyfiberfill at the beginning of October equals exactly the amount needed to satisfy the inventory policy. Each Arabeau produced requires (on average) 0.10 direct labor hour. The average cost of direct labor is $15…arrow_forward
- The Bakery Department of Culbert Dessert Corporation has submitted the following forecast of fruit pies to be produced by quarter for the upcoming fiscal year. Units to be produced First Quarter 9,300 Second Third Quarter Quarter 12,300 10,300 Units to be produced Direct labour time per unit (hours) Total direct labour-hours needed Direct labour cost per hour Total direct labour cost Each unit requires 0.40 direct labour-hours, and direct labour-hour workers are paid $9.00 per hour. In addition, the variable manufacturing overhead rate is $1.00 per direct labour-hour. The fixed manufacturing overhead is $26,250 per quarter. The only non-cash element of manufacturing overhead is depreciation, which is $7,650 per quarter. Required: 1. Prepare the company's direct labour budget for the upcoming fiscal year, assuming that the direct labour workforce is adjusted each quarter to match the number of hours required to produce the forecast number of units produced. Fourth Quarter 14,300 Culbert…arrow_forwardBUS 203: INTRODUCTION TO COST AND MANAGEMENT ACCOUNTING PROJECT: CASH BUDGETING ASSOCIATE DEGREE YEAR 2: SEMESTER 1 (2020/21)Ronstadt Limited’s budget for the four months from January to April includes the following data:1. MonthSalesMaterialsWagesOverheads $000$000$000$000January615115.030360February636120.033390March690135.036420April684130.040425 2. One-third of sales revenue is received one month after sale and the remainder is received two months after sale. The sales in the previous two months were: November $600 000; December $540 000.3. One-quarter of purchases of materials are paid for in the month of purchase. The remainder are paid for two months later. Purchases in the previous two months were: November $108 000; December $106 000.4. Two-thirds of the wages are paid in the month in which they are earned, and the balance is paid in the following month. The wages for the previous December amounted to $30 000.5. One-half of the overhead expenditure is paid in the month in…arrow_forwardan be repaid as planned? Explain. pd. 20,000 to start each Problem 6 (Flexible Budget) Factory Overhead Flexible Budget Preparation Summary flexible overhead budgets are to be prepared for two departments of Summer Machine Company. Budget data follows: Department 1 Manufacturing overhead varies at the rate of P6.50 for each machine hour. and the fixed manufacturing overhead is budgeted for the year at P300,000. At normal capacity, the department should operate at 200,000 machine hours. Department 2 Manufacturing overhead varies at the rate of P7.00 for each direct labor hour, and the fixed manufacturing overhead is budgeted for the year at P500,000. At normal capacity, the department should operate at 400,000 machine hours. One direct labor is equal to two machine hours. Required: Prepare in summary form a flexible budget for each department showing costs at normal capacity, at 90, 80, 70, and 60 percent of normal capacity.arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College