Detmer Enterprises has budgeted sales for the next five months as follows: Budge

Question

 Detmer Enterprises has budgeted sales for the next five months as follows: 

                   Budgeted Sales in Units January                4,600 units February               7,200 units March                  6,800 units April                  5,400 units May                    3,800 units 

 Past experience has shown that the ending inventory for each month should be equal to 15% of the next month's expected sales in units. Additionally, it is known that every unit produced requires 2 direct labor hours to make and direct laborers are paid $10 per hour. The company is currently preparing a direct labor budget. 

 Assume that Detmer pays 80% of its direct labor in the same month the employee works and pays the other 20% in the month after the employee works. Calculate the budgeted cash payments for direct labor for the month of April. Do not use decimals in your answer. 

Explanation / Answer

Detmer Enterprises

Production Budget for March and April:

Labor cost for March = 6,590 x 2 hours x $ 10 = $ 131,800

Labor cost for April = 5,160 x 2 hours x $ 10 = $ 103,200

Cash payments for direct labor for the month of April = $ 131,800 x 20% + $ 103,200 x 80% = $ 108,920

March April Sales in units 6,800 5,400 Desired ending inventory 810 570 Total units required 7,610 5,970 Less units in beginning inventory 1,020 810 Number of units to be produced 6,590 5,160

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