Required information Ramos Co. provides the following sales forecast and product
ID: 2516479 • Letter: R
Question
Required information
Ramos Co. provides the following sales forecast and production budget for the next four months:
The company plans for finished goods inventory of 120 units at the end of June. In addition, each finished unit requires 5 pounds of direct materials and the company wants to end each month with direct materials inventory equal to 30% of next month’s production needs. Beginning direct materials inventory for April was 663 pounds. Direct materials cost $2 per pound. Each finished unit requires 0.50 hours of direct labor at the rate of $16 per hour. The company budgets variable overhead at the rate of $20 per direct labor hour and budgets fixed overhead of $8,000 per month.
1. Prepare a direct labor budget.
2. Prepare a factory overhead budget for April, May, and June.
Explanation / Answer
Solution:
Direct Labor Cost Budget
Budgeted Direct Labor Cost
April
May
June
2nd Quarter Total
Budgeted Production Units
442
570
544
Required Labor Hour per unit
0.50
0.50
0.50
Total Required Labor Hours
221
285
272
Labor Rate per hour
$16.00
$16.00
$16.00
Labor Cost Budget
$3,536
$4,560
$4,352
$12,448
Factory Overhead Budget
Factory Overhead Budget
April
May
June
Total labor hours needed (as per direct labor budget)
221
285
272
Budgeted Variable Overhead Rate per Hour
$20
$20
$20
Budgeted Variable Overhead
$4,420
$5,700
$5,440
Budgeted Fixed Overhead
$8,000
$8,000
$8,000
Total Budgeted factory overhead
$12,420
$13,700
$13,440
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Budgeted Direct Labor Cost
April
May
June
2nd Quarter Total
Budgeted Production Units
442
570
544
Required Labor Hour per unit
0.50
0.50
0.50
Total Required Labor Hours
221
285
272
Labor Rate per hour
$16.00
$16.00
$16.00
Labor Cost Budget
$3,536
$4,560
$4,352
$12,448
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