Detmer Enterprises has the following budgeted sales: Budgeted Sales in Units Jun
ID: 2510198 • Letter: D
Question
Detmer Enterprises has the following budgeted sales: Budgeted Sales in Units June 6,800 units July 5,100 units August 4,400 units September 7,300 units Past experience has shown that the ending finished goods inventory for each month should be equal to 20% of the next month's expected sales in units. Additionally, it is known that every unit produced requires four direct labor hours to make and direct laborers are paid $15 per hour. Assume that Detmer pays 65% of its direct labor in the same month the employee works, pays 30% of its direct labor in the month after the employee works, and the final 5% is paid two months after the employee works. Calculate the budgeted cash payments for direct labor for the month of August.
Explanation / Answer
Solution:
Budgeted Cash payments for direct labor for the month of August
$ 302,880
Calculation:
Particulars
June
July
August
Budgeted sales (in units)
6,800
5,100
4,400
Add: Ending Inventory
1,020
880
1,460
Less: Beginning Inventory
(1,360)
(1,020)
(880)
Units to be produced
6,460
4,960
4,980
Direct labor hours required per unit
4 hours
4 hours
4 hours
Total Direct labor hours required
25,840
19,840
19,920
Total Direct labourers cost ($ 15 per hour)
$ 387,600
$ 297,600
$ 298,800
Budgeted Cash Payments
$ 251,940
$ 309,720
$ 302,880
Given Information: Past experience has shown that the ending finished goods inventory for each month should be equal to 20% of the next month's expected sales in units.
Note: Ending Inventory of a month will be beginning inventory for the following month.
Note: June’s Beginning inventory is same as May’s ending inventory.
Calculation of Ending Inventory
May= 20% of 6,800=1,360
June=20% of 5, 100=1,020
July =20% of 4, 400=880
August =20% of 7,300= 1,460
Calculation of budgetd Cash payments for direct labour
June-
=65 % paid in June = $ 387,600 X 65%= $ 251,940
July-
=30 % of June’s work + 65 % of July’s work
=$ 387,600 X 30% + $297,600 X 65%
=$ 116,280 + $ 193,440
=$ 309,720
August-
=5 % of June’s work + 30 % of July’s work + 65 % of August’s work
=$ 387,600 X 5% + $297,600 x 30% + $ 298,800 x 65%
= $ 19,380 + $ 89,280 + $ 194,220
=$ 302,880
Particulars
June
July
August
Budgeted sales (in units)
6,800
5,100
4,400
Add: Ending Inventory
1,020
880
1,460
Less: Beginning Inventory
(1,360)
(1,020)
(880)
Units to be produced
6,460
4,960
4,980
Direct labor hours required per unit
4 hours
4 hours
4 hours
Total Direct labor hours required
25,840
19,840
19,920
Total Direct labourers cost ($ 15 per hour)
$ 387,600
$ 297,600
$ 298,800
Budgeted Cash Payments
$ 251,940
$ 309,720
$ 302,880
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