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28 April, 02:51

MCO Leather Goods manufactures leather purses. Each purse requires 2 pounds of direct materials at a cost of $4 per pound and 0.7 direct labor hours at a rate of $15 per hour. Variable manufacturing overhead is charged at a rate of $3 per direct labor hour. Fixed manufacturing overhead is $10,000 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 2,880 pounds of direct materials in inventory. The company's production budget reports the following.

Production Budget September October November

Units to be produced 5,200 6,300 6,100

a. Prepare direct materials budgets for September and October.

b. Prepare direct labor budgets for September and October.

c. Prepare factory overhead budgets for September and October.

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Answers (1)
  1. 28 April, 03:11
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    Direct Materials Purchases Budget Sept 51680 October 60160

    Direct labor Budget September 54600 October 66150

    Overhead Budget Sept $ 20920 October $23,230

    Explanation:

    The budgets are calculated in the following ways.

    We multiply the required material, direct labor hour or variable overhead rate with the given number of units and then with the cost per unit to get the total costs.

    MCO Leather Goods Manufacturers

    Direct Materials

    Purchases Budget

    September October November

    Production 5200 6300 6100

    Pounds per units * 2 * 2 * 2

    Total Pounds 10400 12600 12200

    Cost per pound * $4 * $4 * $4

    Total cost 41600 50400 48800

    On hand

    Inventory + 10080 + 9760 - --

    Direct Materials

    Purchases Budget 51680 60160

    MCO Leather Goods Manufacturers

    Direct Labor Budget

    September October

    Production 5200 6300

    Hours required per unit * 0.7 * 0.7

    Total hours 3640 4410

    Rate per hour * $15 * $15

    Total labor Cost 54600 66150

    MCO Leather Goods Manufacturers

    Factory Overhead Budget

    September October

    Production 5200 6300

    Hours required per unit * 0.7 * 0.7

    Labor Hours 3640 4410

    Variable OH * $3 * $3

    Variable Costs $10920 $13230

    Fixed OH + $10,000 + $10,000

    Total OH $ 20920 $23,230
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