Exercise 9-10 (Part Level Submission) Lowell Company makes and sells artistic fr

Question

Exercise 9-10 (Part Level Submission)

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2017.

January
February
March
April
May
Estimated unit sales 10,900 11,900 8,200 8,700 8,100
Sales price per unit $50.20 $48.00 $48.00 $48.00 $48.00
Direct labor hours per unit 2.3 2.3 1.5 1.5 1.5
Wage per direct labor hour $8.00 $8.00 $8.00 $9.00 $9.00

Lowell has a labor contract that calls for a wage increase to $9.00 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1.

Lowell expects to begin the year with 19,230 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 70% of the second following month’s sales.

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(a)

Prepare a production budget for Lowell Company by month and for the first quarter of the year.

Explanation / Answer

a) Prepare a production budget for Lowell Company by month and for the first quarter of the year.

January February March Quarter Sales in units 10900 11900 8200 31000 Add: Desired ending inventory 17640 14290 14370 14370 Total needs 28540 26190 22570 45370 Less: Beginning inventory (19230) (17640) (14290) (19230) Unit to be produce 9310 8550 8280 26140

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