Trago Company manufactures a single product and has a JIT policy that endind inv

Question

Trago Company manufactures a single product and has a JIT policy that endind inventory must equal 10% of the next month's sales. It estimated that May's ending inventory will consist of 29,000 units. June and July sales are estimated to be 290,000 and 300,000 units, respectivily. Trago assigns variable overhead at a rate of $2.80 per unit of production. Fixed overhead equals $410,000 per month. Compute the number of units to be produced and use this amount to compute the total budgeted overhead that would appear on the factory overhead budget for the month of June.

A. $1,222,000

B. $1,224,800

C. $1,250,000

D. $814,800

Explanation / Answer

Number of units to be produced in the month of June = Total units required for sales in June + 10% of units required for sales in July (which is ending inventory for June) - Ending inventory in May (which is 10% of units required in June)

= 290000 + (10% 0f 300000) - 29000

= 290000 + 30000 -29000 = 291000 units

Variable overhead = $2.8 * 291000 = $814800

Fixed overhead = $410000

Total budgeted overhead = Variable overhead + fixed overhead = $814800+$410000 = $1224800

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