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    Preparing Operating Budget Components

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    Black & Decker (B&D) manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Use the following fictitious information about this product line to complete the problem requirements. Each handisaw sells for $50. B&D expects the following unit sales.

    January 2,100
    February 2,600
    March 3,000
    April 2,800
    May 2,000

    B&D's ending finished goods inventory policy is 35 percent of the next month's sales.
    Suppose each handisaw takes approximately .35 hours to manufacture, and B&D pays an average labor wage of $13.50 per hour.
    Each handisaw requires a plastic housing that B&D purchases from a supplier at a cost of $6.00 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 $3.50 per handisaw.
    Manufacturing overhead for this product includes $66,000 annual fixed overhead (based on production of 21,000 units) and $.90 per unit variable manufacturing overhead. B&D's selling expenses are 7 percent of sales dollars, and administrative expenses are fixed at $17,000 per month.

    Problem 1:
    Calculate the production budget for Black & Decker (B&D) for the first quarter (January, February, and March). Include each month as well as the first quarter.



    I have tried to figure it out and keep getting it wrong.

    For January, I tried 2100 - (2100*10%) + (2600*10%)= 12900

    Took 2150 *6 = 12900 (That was wrong)
    Tried (2150*6) + (2150*3.50)= 20425
    I also tried: 22420, 14160, 8260 all of these came up wrong

    Calculate the raw materials purchases budget for the plastic housings for Black & Decker (B&D) for the first quarter (January, February, and March). Include each month as well as the first quarter.


    I don't know whether the selling and administrative expenses are included or not.

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    Solution Summary

    The expert examines preparing operating budget components.