Higgins Manufacturing is preparing its budget for next year and wants to reflect that there is a significant amount of uncertainty involved in the process. The marketing team has developed the following estimates of unit sales # of Units 50,000 60,000 70,000 Probability 20% 50% 30% Each unit produced requires 2 hours of labor. The cost per hour of labor is $30 for up to 100,000 hours per year Above that level, overtime and other additional costs will be incurred, resulting in a cost of $40 per hour for each additional hour. Each unit produced requires 5 pounds of materials. There is a 60% probability that the current material price per pound of $10.00 will continue for next year, although there is a 40% chance that the price will increase by 20%. Overhead costs are estimated at $1.5 million for next year. If Higgins bases its budget on the expected values for the risky variables, what will the budgeted amount be for cost of goods sold?
Higgins Manufacturing is preparing its budget for next year and wants to reflect that there is a significant amount of uncertainty involved in the process. The marketing team has developed the following estimates of unit sales # of Units 50,000 60,000 70,000 Probability 20% 50% 30% Each unit produced requires 2 hours of labor. The cost per hour of labor is $30 for up to 100,000 hours per year Above that level, overtime and other additional costs will be incurred, resulting in a cost of $40 per hour for each additional hour. Each unit produced requires 5 pounds of materials. There is a 60% probability that the current material price per pound of $10.00 will continue for next year, although there is a 40% chance that the price will increase by 20%. Overhead costs are estimated at $1.5 million for next year. If Higgins bases its budget on the expected values for the risky variables, what will the budgeted amount be for cost of goods sold?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Higgins Manufacturing is preparing its budget for next year and wants to reflect that there is a significant amount
of uncertainty involved in the process. The marketing team has developed the following estimates of unit sales
# of Units
50,000
60,000
70,000
Probability
20%
50%
30%
Each unit produced requires 2 hours of labor. The cost per hour of labor is $30 for up to 100,000 hours per year
Above that level, overtime and other additional costs will be incurred, resulting in a cost of $40 per hour for each
additional hour. Each unit produced requires 5 pounds of materials. There is a 60% probability that the current
material price per pound of $10.00 will continue for next year, although there is a 40% chance that the price will
increase by 20%. Overhead costs are estimated at $1.5 million for next year. If Higgins bases its budget on the
expected values for the risky variables, what will the budgeted amount be for cost of goods sold?
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