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Durham Electric Corporation Materials and Inventory

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.

Solution Summary

This solution discusses production and purchases budget.