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 $60. Wesley expects the following unit sales: January February March April May 5,200 5,400 5,900 5,700 5,100 Wesley's ending finished goods inventory policy is 20 percent of the next month's sales. Suppose each handisaw takes approximately .75 hours to manufacture, and Wesley pays an average labor wage of $22 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 1st Quarter Total Budgeted sales revenue        3,12,000        3,24,000        3,54,000                 9,90,000 Budgeted production in units              5,240              5,500              5,860                     16,600 Budgeted cost of raw materials purchases $51,660 $39,004 $40,628 $1,31,292 Budgeted direct labour cost $8,52,390 $6,43,566 $6,70,362 $21,66,318 Working Notes: Budgeted production in units January February March April Sales (Units)              5,200              5,400              5,900                       5,700 Add: Closing Stock              1,080              1,180              1,140                       1,020 Less: Opening Stock              1,040              1,080              1,180                       1,140 Production (Units)              5,240              5,500              5,860                       5,580 Budgeted cost of raw materials purchases Raw material required for Production              5,240              5,500              5,860 Add: Closing Stock              1,100              1,172              1,116 Less: Opening Stock              1,048              1,100              1,172 Raw material purchased              5,292              5,572              5,804 Cost per plastic housing $7 $7 $7 Budgeted cost of raw materials purchases            51,660            39,004            40,628 Budgeted direct labour cost: Production (Units)            51,660            39,004            40,628 Labour hours required per unit                       1                       1                       1 Total hours            38,745            29,253            30,471 Rate per hour $22 $22 $22 Budgeted direct labour cost        8,52,390        6,43,566        6,70,362

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