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Production Budgets Accounting

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AC556
Week 3 Problem
Production Budgets

Note: It is expected that this problem will be complete using an Excel spreadsheet using formulas. Please see the Excel Tutorial that is available under the course home tab.

The Hale Company finished their sales projections for the coming year. The company produces one product. Part of next year's sales projections are as follows:

July August September October November
Projected Sales in units 100,000 125,000 156,000 165,000 185,000

The budget committee has also compiled the following information on inventories:

Raw materials Work-in-Process Finished Goods
Ending Balance, June 22,000 lbs None 13,000 units
Desired ending levels (monthly) 5% of next month's production needs None 12% of next month's sales

Engineering has developed the following standards upon which the production budgets will be developed:

Item Standard
Materials usage 5 lbs per unit
Material price per pound $1.50 per pound
Labor usage 0.4 hours per unit
Labor rate $30 per hour
Machine hours 3 machine hours per unit

The Hale Company uses a modified allocation method for allocating overhead costs. The rates that will be used in the coming year are as follows:

Overhead item Allocation rate
Utilities $0.50 per machine hour
Inspection $10 per unit produced
Factory supplies $2 per unit produced
Depreciation $35,000 per month
Supervision $12,000 per month

Required:
Prepare the following production budgets for July, August, and September for the Hale Company:
1. Production budget
2. Materials purchase budget
3. Direct labor budget
4. Overhead budget
For the quarter (quarter totals only), prepare the:
5. Cost of goods manufactured budget

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Solution Summary

The solution explains how to prepare the following budgets - Production budget, Materials purchase budget, Direct labor budget, Overhead budget and Cost of goods manufactured budget

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