Wilson Industries produces an assembly used in the production of various product

Question

Wilson Industries produces an assembly used in the production of various products. The assembly is sold to various manufacturers throughout the United States. The unit selling price is $ 175.00. A projected sales forecast (in units) follows:

                                    January           18,000                                    

                                    February         24,000

                                    March              30,000            

                                    April                 37,000

                                    May                 32,000

The following information pertains to production policies and manufacturing specifications followed by Wilson Industries:

a.    Finished goods inventory on January 1st was 5,400 units. The desired ending inventory for each month is 30 percent of the next month’s sales.

b.    Materials used in the assembly are as follows:

Direct Material             Part #              Parts Per Unit             Cost per Part

     Widget                    325                            4                          $ 7.00

     Whatnot                  326                            6                          $ 3.00         

      Inventory policy dictates that sufficient materials be on hand at the beginning of the month to produce 40 percent of that month’s production needs. (THINK!!) This is exactly the amount of material on hand on January 1st.

c.     The direct labor used per unit of assembly is four hours. The average direct labor cost per hour is $ 19.00.

d.    The predetermined variable overhead is allocated at the rate of $ 11.00 per direct labor hour. Fixed overhead averages $265,000 per month.

The following information pertains to sales/purchases and their related cash collections/disbursements pattern:

a.    On average, credit sales are 75% of total sales.

b.    On average, 30% of credit sales are collected in the month of sale; 55% of credit sales are collected in the month following sale; 15% of credit sales are collected in the second month following sale.

c.     Cash sales for November and December were $ 700,000 and $ 950,000 respectively. (THINK!!)

d.    All material purchases are on account. On average, 40% of material purchases are paid in the month of purchase; 60% of material purchases are paid in the month following purchase.

e.    Material purchases for November and December were $ 974,300 and $ 1,158,000 respectively.

Given the above information, answer the following questions.

(Hints: prepare a skeleton of the following budgets for the first quarter: sales, production, D/M, D/L, OVH, cash receipts, cash payments; plug in the appropriate data; complete the budgets; answer the questions; since there are 2 D/M (widgets and whatnots), you will need 2 D/M budgets – one for each part; credit will NOT be given for carry-thru errors so make sure your budgets are prepared properly; see me for help. Read the information carefully. I know you can do it. Good luck and have fun.J)

1.    How many assembly units should be produced in the first quarter?

2.    What dollar amount of widgets needs to be purchased in January?

3.    What quantity (not $) of whatnots needs to be purchased in the first quarter?

4.    What is the total cost of Direct Materials for February?

5.    How many Direct Labor hours are needed in March?

6.    What is the total cost for Direct Labor for the first quarter?

7.    How much is budgeted variable overhead for January?

8.    How much is budgeted fixed overhead for the first quarter?

9.    What is the expected amount of cash receipts for February?

10. What is the estimated payment in January for material purchases?

Explanation / Answer

1 Production Budget Jan Feb Mar Total April May Sales 18000 24000 30000 37000 32000 Add:Ending inventory (30% of next month sales) 7200 9000 11100 9600 25200 33000 41100 46600 Less: Beginning inventory 5400 7200 9000 11100 Units to be produced 19800 25800 32100 77700 35500 Units to be produced in the first quretr=77700 units 2 Units to be produced in January=19800 units Widgets required (19800*4) 79200 Add:Ending inventory (40% of next month production) (25800*4*40%) 41280 120480 Less: Beginning inventory (40% of this month production) (79200*40%) 31680 Widgets to be purchased in units 88800 Cost per part 7 $ amount of widgets to be purchased 621600 3 Jan Feb Mar Total Apr Units to be produced 19800 25800 32100 35500 Whatnot rquired per unit 6 6 6 6 Whatnot rquired 118800 154800 192600 213000 Add:Ending inventory (40% of next month production) 61920 77040 85200 180720 231840 277800 Less: Beginning inventory (40% of this month production) 47520 61920 77040 Whatnots to be purchased in units 133200 169920 200760 503880 What nots to be purchased in the first quarter=503880 units 4 Units to be produced in February=25800 units Widgets required (25800*4) 103200 Add:Ending inventory (40% of next month production) (32100*4*40%) 51360 154560 Less: Beginning inventory (40% of this month production) (25800*4*40%) 41280 Widgets to be purchased in units 113280 Cost per part 7 $ amount of widgets to be purchased…. (a) 792960 $ amount of whatnots to be purchased (169920*3)……. (b) 509760 Total cost of direct materials (a)+(b) 1302720

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