Al-Noor Corporation assembles bicycles by purchasing frames, wheels, and other parts from various suppliers. Consider the following data: • The company plans to sell 25,000 bicycles during each month of the year's first quarter. • A review of the accounting records disclosed a finished-goods inventory of 1,400 bicycles on January 1 and an expected finished-goods inventory of 1,850 bicycles on January 31. • Al-Noor has 4,300 wheels in inventory on January 1, a level that is expected to drop by 5% at month-end. • Assembly time totals 30 minutes per bicycle, and workers are paid $14 per hour. • Al-Noor accounts for employee benefits as a component of direct labor cost. Pension and insurance costs average $2 per hour (total); additionally, the company pays Social Security taxes that amount to 8% of gross wages earned. Required: A. How many bicycles does Al-Noor expect to produce (i.e., assemble) in January? B. How many wheels are budgeted to be purchased in January? C. Compute Al-Noor's total direct labor cost for January. D. Briefly explain how the company's purchasing activity would affect the end-of-period balance sheet.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Al-Noor Corporation assembles bicycles by purchasing frames, wheels, and other parts from
various suppliers. Consider the following data:
• The company plans to sell 25,000 bicycles during each month of the year's first quarter.
• A review of the accounting records disclosed a finished-goods inventory of 1,400 bicycles on
January 1 and an expected finished-goods inventory of 1,850 bicycles on January 31.
• Al-Noor has 4,300 wheels in inventory on January 1, a level that is expected to drop by 5% at
month-end.
• Assembly time totals 30 minutes per bicycle, and workers are paid $14 per hour.
• Al-Noor accounts for employee benefits as a component of direct labor cost. Pension and
insurance costs average $2 per hour (total); additionally, the company pays Social Security taxes
that amount to 8% of gross wages earned.
Required:
A. How many bicycles does Al-Noor expect to produce (i.e., assemble) in January?
B. How many wheels are budgeted to be purchased in January?
C. Compute Al-Noor's total direct labor cost for January.
D. Briefly explain how the company's purchasing activity would affect the end-of-period
balance sheet.
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