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    Production Budgets Accounting

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    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

    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