PROBLEM ONE Bertie\'s Botts manufactures and sells plastic bottles to several be
ID: 2486511 • Letter: P
Question
PROBLEM ONE
Bertie's Botts manufactures and sells plastic bottles to several beverage companies. All plastic bottles produced are identical. At year end (on December 31, 2010), the company gathered the following information to prepare for the 2015 budget.
Materials and Labor Requirements:
Direct materials
20 grams of plastic needed per bottle
$0.003/gram
Direct labor
5.8 seconds needed per bottle
$19/hour
Manufacturing overhead
DLH as an allocation base
Predetermined overhead rate = $4.50/DLH
The company expects to sell 18,000,000 bottles in 2015 at an estimated average selling price of $0.30 per bottle. The company uses the weighted average method for inventory flow, and has the following balances in inventory.
Direct Material Inventory (plastic):
2015’s Beginning inventory for plastic 20,000,000 grams
2015’s Targeted ending inventory for plastic 10,000,000 grams
Finished Goods Inventory (bottles):
2015's Beginning inventory for bottles 2,000,000 bottles
2015's Budgeted ending inventory for bottles 3,000,000 bottles
Additional budgeted non-manufacturing expenses for 2015 include:
General and administration costs $950,000
Insurance 18,000
Utilities 7,000
Interest on loans 2,000
What is the direct labor budget for 2015?
a.
$722,000
b.
$1,110,000
c.
$1,250,000
d.
None of the above.
Explanation / Answer
BEGINNING INVENTORY AT 2015 = 2000000
BUDGETED ENDING INVENTORY = 3000000
BUDGETED SALES = 18000000
SO THE BUDGETED PRODUCTION DURING THE YEAR
= 18000000 + 3000000 - 2000000
= 19000000
DIRECT LABOUR HOUR REQUIRED PER BOTTLE (5.8 / 3600) = 0.00161 HOUR
DIRECT LABOUR HOUR REQUIRED FOR 19000000 BOTTLE (19000000 * 0.001611) = 30609 DLH (ROUNDED)
BUDGETED DIRECT LABOUR COST (30609 * $19) = $581571
ANSWER OPTION NONE OF THE ABOVE D
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