are a production budget and estimate the materials, labor, and overhead costs for year 2.
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.
Problem 13-56 (Algo) Prepare a Production Budget (LO 13-4)
Haggstrom, Inc., manufactures steel fittings. Each fitting requires both steel and an alloy that allows the fitting to be used under extreme conditions. The following data apply to the production of the fittings.
| Direct materials per unit | ||
| 3 pounds of steel at $0.55 per pound | ||
| 0.5 pounds of alloy at $1.60 per pound | ||
| Direct labor per unit | ||
| 0.02 hours at $20 per hour | ||
| Overhead per unit | ||
| Indirect materials | $ | 0.55 |
| Indirect labor | 0.70 | |
| Utilities | 0.45 | |
| Plant and equipment |
0.90 | |
| Miscellaneous | 0.75 | |
| Total overhead per unit | $ | 3.35 |
The plant and equipment depreciation and miscellaneous costs are fixed and are based on production of 250,000 units annually. All other costs are variable. Plant capacity is 300,000 units annually. All other overhead costs are variable.
The following are
Haggstrom expects to sell 270,000 units in year 2. The current inventory of fittings is 20,000 units, and management would like to see a reduction of inventory of 10,000 units by the end of the year 2. Steel and alloy inventories will not change. Sales are approximately uniform over the year.
Required:
Prepare a production budget and estimate the materials, labor, and overhead costs for year 2.
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