chandler, Inc. , manufacturers clothes shopping bags. The controller is preparin

Question

chandler, Inc. , manufacturers clothes shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production:

direct materials per bag
1.0 yard cotton at $3 per yard
0.2 yards canvas finish at $10 per yard

direct labor per bag
0.5 hour at $16 per hour

overhead per bag
indirect labor $0.50
indirect materials 0.15
power 0.30
equipment costs 1.25
building occupancy 0.8
total overhead per unit $3.00

you learn that equipment costs and building occupancy are fixed and are based on a normal production of 300,000 units per year. other overhead costs are variable. plant capacity is sufficient to produce 375,000 units per year.
labor costs per hour are not expected to change during the year. however the cotton supplier has informed chandler that it will imposed a 20 percent price increase at the start of the coming budget period. no other costs ate expected to change.

during the coming budget period chandler expects to sell 270,000 bags. finished goods inv. is targeted to increase from the current balance of 60,000 units to 105,000 units. prepare a production budget and estimate the materials, labor and overhead costs.

Explanation / Answer

Chandler Inc. All Amounts in $ Production of Bags in coming budget period Opening Inventory 60000 Production 315000 Bags to be produced Sales 270000 Closing Inventory 105000 Costs of Production Budget Direct Material Cost Cotton 945000 Canvas Finish 630000 1575000 Direct Labor Cost 2520000 Overhead Costs Variable Overheads Indirect Labor 157500 Indirect Materials 47250 Power 94500 299250 Fixed Overheads Equipment Cost 375000 Building Occupancy 240000 914250 Total Costs of Production 5009250

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