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    Durham Electric Corporation Materials and Inventory

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    Part I. Budgeting

    Use the following problems in answering A. and B below:

    Durham Electric Corporation manufactures two different types of coils used in electric motors. In the fall of 2008 Jessica Martin, the controller, compiled the following data:

    Use of raw material:

    Amount Used per Unit

    Raw Material Light Coil Heavy Coil

    Sheet metal 4 lb. 5 lb.
    Copper wire 2 lb. 3 lb.
    Platform I unit

    Raw material prices and inventory levels:

    Anticipated Expected Desired
    Purchase Inventories Inventories
    Raw Material Price Jan. 1, 2009 Dec. 31, 2008

    Sheet metal $8 32,000 lb. 36,000 lb.
    Copper wire $5 29,000 lb. 32,000 lb.
    Platform $3 6,000 lb. 7,000 lb.

    Direct Labor requirements and rates:

    Hours per unit Rate per hour

    Light coil 2 $15
    Heavy coil 3 $20

    Overhead is applied at the rate of $2 per direct labor hour.

    Finished goods inventory (in units):

    Expected Desired
    Jan. 1, 2009 Dec. 31, 2008


    Light coil 20,000 25,000
    Heavy coil 8,000 9,000

    Sales forecast for 2009:

    Units Price


    Light coil 60,000 $ 70
    Heavy coil 40,000 $100

    A. Sales (15 points)


    Prepare a sales budget in units and dollars for the company for the coming year.

    B. Purchases and Production Budgets


    1. Prepare a production budget for the coming year.
    2. Prepare a purchases budget in pounds and dollars for the coming year.

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    Solution Summary

    This solution discusses production and purchases budget.