Orville Company has developed the following standards relating to the production

Question

Orville Company has developed the following standards relating to the production of their finished units: Direct Materials, 7 pounds per unit @ $3.00 per pound Direct Labor, 4 hours per unit @ $20 per labor hour Variable Overhead, 6 machine hours per unit @ $5 per machine hour Fixed overhead costs are estimated at $303,000 each quarter. The expected selling price is $250 per unit. Selling and administrative costs are expected to be $2 per unit variable and $120,000 fixed each quarter.

The following sales forecast is available for the year 2017: First Quarter 4,000 units; Second Quarter 6,000 units; Third Quarter 8,000 units; and Fourth Quarter 7,000 units. The expected sales in the First Quarter of the year 2018 are 5,000 units. Any beginning inventories for the year meet the same requirements that management has for inventories in the current year.

A.How many machine hours are expected to be USED for production for the year?

B.What is the pre-determined fixed overhead rate based on machine hours?

C. What is the total expected manufacturing cost of a finished unit?

D. If management requires a raw materials inventory equal to 10% of the next quarter's materials required for production, prepare a materials purchase budget for JUST the first TWO quarters of the year. Email me your materials purchase budget after you complete the exam. What is the cost of the materials expected to be purchased in the first quarter?

E. Using your materials purchases budget, what is the expected cost of the materials to be purchased in the second quarter?

F. For the first quarter, what is the expected direct labor cost?

G. For the first quarter, what is the expected variable overhead cost?

H. For the first quarter, what is the expected fixed overhead cost?

I. For the first quarter, what amount of fixed overhead cost will be applied to production?

J. For the first quarter, what are the budgeted total sales dollars?

K. For the first quarter, what is the budgeted cost of goods sold?

L. For the first quarter, what are the budgeted TOTAL selling and administrative costs?

M. For the first quarter, what is the budgeted net income?

N. What is the expected balance (in dollars) of the ending raw materials inventory at the end of the first quarter?

O. What is the expected balance (in dollars) of the ending finished goods inventory at the end of the first quarter?

P. What amount of fixed overhead cost will be applied to the units produced for the YEAR?

Explanation / Answer

Solution A:

As beginning inventory and ending inventory are the same, therefore budgeted production units wil be equal to budgeted sales units.

Budgeted production units for 2017 = 4000 + 6000 + 8000 + 7000 = 25000 units

Machine hours are expected to be used for production for the year = Budgeted production units * machine hour per unit

= 25000 * 6 = 150000 machine hours

Solution B:

Pre-determined fixed overhead rate based on machine hours = Budgeted fixed overhead / Budgeted machine hours

= ($303000*4) / 150000 = $8.08 per machine hour

Solution C:

Total expected manufacturing cost of a finished unit = Direct material per unit + Direct labor per unit + variable overhead per unit + fixed overhead per unit

= (7*$3) + (4*$20) + (6*$5) + (6*$8.08) = $179.48

Solution D:

cost of the materials expected to be purchased in the first quarter = $88,200

Solution E:

Expected cost of the materials to be purchased in the second quarter = $130,200

Note: I have answered more than required parts as per chegg policy, kindly post separate question for answer of remaining parts.

Raw material purchase budget Particulars Q1 Q2 Budgeted production units 4000 6000 Material need per unit (In pound) 7 7 Total material requirement (In pound) 28000 42000 Add: Desired ending inventory (10% of next quarter production needs) 4200 5600 Less: Beginning inventory of raw material 2800 4200 Budgeted purchase quantity of raw material 29400 43400 Raw material cost per pound $3.00 $3.00 Budgeted purchase of raw material $88,200.00 $130,200.00

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