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 $46. Wesley expects the following unit sales: January February March April May 3,800 4,000 4,500 4,300 3,700 Wesley's ending finished goods inventory policy is 25 percent of the next month's sales. Suppose each handisaw takes approximately .60 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 $5.00 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. sales dollars, and administrative expenses are fixed at $18,000 per month. Required 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 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        1,74,800        1,84,000        2,07,000                 5,65,800 Budgeted production in units              3,850              4,125              4,450                     12,425 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)              3,800              4,000              4,500                       4,300 Add: Closing Stock              1,000              1,125              1,075                       1,020 Less: Opening Stock                  950              1,000              1,125                       1,075 Production (Units)              3,850              4,125              4,450                       4,245 Budgeted cost of raw materials purchases Raw material required for Production              3,850              4,125              4,450 Add: Closing Stock                  825                  890                  849 Less: Opening Stock                  770                  825                  890 Raw material purchased              3,905              4,190              4,409 Cost per plastic housing $5 $5 $5 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                 0.60                 0.60                 0.60 Total hours            30,996            23,402            24,377 Rate per hour $22 $22 $22 Budgeted direct labour cost        8,52,390        6,43,566        6,70,362

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