MCO Leather Goods manufactures leather purses. Each purse requires 3 pounds of d

Question

MCO Leather Goods manufactures leather purses. Each purse requires 3 pounds of direct materials at a cost of $4 per pound and 0.7 direct labor hours at a rate of $12 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 30% of the next month’s materials requirement. At the end of August the company had 4,480 pounds of direct materials in inventory. The company’s production budget reports the following. Prepare direct labor budgets for September and October Prepare factory overhead budgets for September and October.

Explanation / Answer

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September October Material Budget Begning Inventory ponds 4480 August Requirement 14933 Purchased 10453 Ending Inventory ? Total Purse manufactured =14993ponds/3 ponds 4978 Cost of Material (14933 Ponds X $4) 59732 Direct labor budgets Total Purse manufactured =14993ponds/3 ponds 4978 Labour Requirement (.7 Hours X 4978)= Hours 3484 Total Labour Charges ( 3484 Hours X $12) = $ 41812 factory overhead budgets Total Purse manufactured =14993ponds/3 ponds 4978 Variable Manufacturing OH per perse $ 2.1 Total Variable Manufcturing OH $ 10453 Fixed Ovrhead $ 10000 Total Factory Overhed 20453 Total Cost 121998

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