PA8-4 Preparing Operating Budget Components [LO 8-3a, b, c, d] Wesley Power Tool

Question

PA8-4 Preparing Operating Budget Components [LO 8-3a, b, c, d] Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Each handisaw sells for $68. Wesley expects the following unit sales January February March April May 6,000 6,200 6,700 6,500 5,900 Wesley's ending finished goods inventory policy is 30 percent of the next month's sales. Suppose each handisaw takes approximately .60 hours to manufacture, and Wesley pays an average labor wage of $30 per hour Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $7.00 each. The company has an ending raw materials inventory policy of 20 percent of the following month's production requirements. Materials other than the housing unit total $4.50 per handisaw. Manufacturing overhead for this product includes $72,000 annual fixed overhead (based on production of 27,000 units) and $1.20 per unit variable manufacturing overhead. Wesley's selling expenses are 7 percent of sales dollars, and administrative expenses are fixed at $18,000 per month. Required 1. Compute the following for the first quarter: (Do not round your intermediate calculations.) January February March 1st Quarter total 1. Budgeted Sales Revenue 2. Budgeted Production in Units 3. Budgeted Cost of Raw Material Purchases for the Plastic Housings 4. Budgeted Direct Labor Cost

Explanation / Answer

January February March quarter Budgeted sales revenue 408000 421600 455600 $1285200 (6000*68) (6200*68) (6700*68) Budgeted production units January February March quarter April a sales units 6000 6200 6700 18900 6500 b Add:ending finished goods@30% of next month sales 1240 1340 1300 3880 1770 c Less:Beginning finished goods inventory -1200 -1240 -1340 -3780 -1300 Budgeted production units(a+b-c) 6040 6300 6660 19000 6970 Budgeted cost of raw materils purchases January February March quarter a Budgeted raw materials required for production@ 1 plastic housing per handisaw 6040 6300 6700 19040 b Add:ending inventory@20% of following month production requirements 1260 1340 1394 3994 c Less:beginning inventory 1208 1260 1340 3808 d Budgeted raw materils purchases(a+b-c) 8508 8900 9434 26842 e cost per plastic housing $7 $7 $7 f Therfore Budgeted cost of raw materils purchases(d*f) $59556 $62300 $66038 $187894 Budgeted Direct Labour cost January February March quarter a budgeted production in uits 6040 6300 6660 19000 b labour hours required per unit 0.6 0.6 0.6 0.6 c total hours required(a*b) 3624 3780 3996 11400 d Labour rate per hour $30 $30 $30 $30 e budgeted direct labour cost(c*d) $108720 $113400 $119880 $342000

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