PA8-5 Preparing Operating Budget Components [LO 8-3f, g, h] Wesley Power Tools m

Question

PA8-5 Preparing Operating Budget Components [LO 8-3f, g, h] 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 $70. Wesley expects the following unit sales: 2,200 2,300 January February March April May 2,700 2,100 Wesley's ending finished goods inventory policy is 35 percent of the next month's sales. Suppose each handisaw takes approximately .55 hours to manufacture, and Wesley pays an average labor wage of $13.50 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 10 percent of the following month's production requirements. Materials other than the housing unit total $4.00 per handisaw. Manufacturing overhead for this product includes $72,000 annual fixed overhead (based on production of 24,000 units) and $.90 per unit variable manufacturing overhead. Wesley's selling expenses are 5 percent of sales dollars, and administrative expenses are fixed at $16,000 per month. Required 1. Compute the budgeted cost of goods sold for the first quarter. (Round direct material, direct labor and overhead costs per unit to 2 decimal places. Round final answers to the nearest dollar amount.) 2. Compute the budgeted selling and administrative expenses 3. Complete the budgeted income statement for the handisaw product for the first quarter. (Round direct material, direct labor and overhead costs per unit to 2 decimal places. Round final answers to the nearest dollar amount.)

Explanation / Answer

(a) Budgeted cost of goods sold for first quarter

(b) Calculation of budgeted selling and administrative overheads

Per unit January February March Units sold          2,200          2,300          2,800 Labour cost           7.43        16,335 17,077.50        20,790 Materials required: Plastic housing                5        11,000        11,500        14,000 Other materials                4          8,800          9,200        11,200 Manufacturing overheads Fixed                3          6,600          6,900          8,400 Variable           0.90          1,980          2,070          2,520 Cost of goods sold        44,715 46,747.50        56,910

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