Diane Buswel! is preparing the 201/ budget for one of Current Designs rotomolded

Question

Diane Buswel! is preparing the 201/ budget for one of Current Designs rotomolded kayaks Extensive meetings with members of the sales department and executive team have resulted in the following unit sales projections for 2017. Quarte 1,000 kayaks Quarter 2 1,500 kayaks Quarter 3 750 kayaks Quarter 4 750 kayaks Current Designs policy is to have finished goods ending inventory in a quarter equal to 20% of the next quarters anticipated sales. Preliminary sales projections for 2018 are 1,100 units for the first quarter and 1,500 units for the second quarter. Ending inventory of finished goods at December 31, 2016, will be 200 rotomolded kayak:s Production of each kayak requires 54 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). Company policy is that the ending inventory of polyethylene powder should be 25% of the amount needed for production in the next quarter. Assume that the ending inventory of polyethylene powder on December 31,2016, is 19,400 pounds. The finishing kits can be assembled as they are needed. As a result, Current Designs does not maintain a significant inventory of the finishing kits The polyethylene powder used in these kayaks costs $1.50 per pound, and the finishing kits cost $170 each. Production of a single kayak requires 2 hours of time by more experienced, type I employees and 3 hours of finishing time by type II employees. The type I employees are paid $15 per hour, and the type II employees are paid $12 per hour Selling and administrative expenses for this line are expected to be $45 per unit sold plus $7,500 per quarter. Manufacturing overhead is assigned at 150% of labor costs Instructions Prepare the production budget, direct materials budget, direct labor budget, manufacturing overhead budget, and selling and administrative budget for this product line by quarter and in total for 2017

Explanation / Answer

Production Budget 2017 2018 Qtr.1 Qtr.2 Qtr.3 Qtr.4 Qtr.1 Qtr.2 Sales units 1000 1500 750 750 4000 1100 1500 Desired ending finished units(20%*Next qtr. Sales units) 300 150 150 220 220 300 Total Needed 1300 1650 900 970 4220 1400 Less:Beg.units available 200 300 150 150 200 220 Production reqd. 1100 1350 750 820 4020 1180 Direct materials Budget 1. Polyethylene Powder (in Pounds) Pounds reqd. for prodn.(Prodn.units*54) 59400 72900 40500 44280 217080 63720 Desired ending Inv.(25%*Next qtr. Prodn.needs) 18225 10125 11070 15930 15930 Total Needed 77625 83025 51570 60210 233010 Less:Beg.Pds. available 19400 18225 10125 11070 19400 Purchases reqd. 58225 64800 41445 49140 213610 Cost /pd. 1.5 1.5 1.5 1.5 1.5 a.Total cost 87337.5 97200 62167.5 73710 320415 Finishing kits Budget Total kits reqd. at 1/prodn. Unit 1100 1350 750 820 4020 Cost/kit 170 170 170 170 170 b.Total cost 187000 229500 127500 139400 683400 Total cost of Direct materials(a+b) 274337.5 326700 189667.5 213110 1003815 Direct Labor budget Production reqd. 1100 1350 750 820 4020 Type I Labor hrs reqd. at 2/unit 2200 2700 1500 1640 8040 c.Type I Lab.cost at $ 15/hr. 33000 40500 22500 24600 120600 Type II Labor hrs reqd. at 3/unit 3300 4050 2250 2460 12060 d.Type II Lab.cost at $ 12/hr. 39600 48600 27000 29520 144720 Total direct labor cost(c+d) 72600 89100 49500 54120 265320 Manufacturing Overhead Budget 150%*Total D/L cost 108900 133650 74250 81180 397980 Selling and administrative expenses Budget Sales units 1000 1500 750 750 4000 Variable S&A   amt.(Units sold*$ 45) 45000 67500 33750 33750 180000 Fixed S&A 7500 7500 7500 7500 30000 Total S&A expenes 52500 75000 41250 41250 210000

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