The production department of Hareston Company has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:1st Quarter 2nd Quarter 3rd Quarter 4th QuarterUnits to be produced ........................... 7,000 8,000 6,000 5,000In addition, the beginning raw materials inventory for the first quarter is budgeted to be 1,400 pounds andthe beginning accounts payable for the first quarter is budgeted to be $2,940.Each unit requires 2 pounds of raw material that costs $1.40 per pound. Management desires to endeach quarter with an inventory of raw materials equal to 10% of the following quarter’s production needs.The desired ending inventory for the fourth quarter is 1,500 pounds. Management plans to pay for 80%of raw material purchases in the quarter acquired and 20% in the following quarter. Each unit requires0.60 direct labor-hours and direct labor-hour workers are paid $14.00 per hour.Required:1. Prepare the company’s direct materials budget and schedule of expected cash disbursements forpurchases of materials for the upcoming fiscal year.2. Prepare the company’s direct labor budget for the upcoming fiscal year, assuming that the direct laborworkforce is adjusted each quarter to match the number of hours required to produce the forecastednumber of units produced.
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.
The production department of Hareston Company has submitted the following
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced ........................... 7,000 8,000 6,000 5,000
In addition, the beginning raw materials inventory for the first quarter is budgeted to be 1,400 pounds and
the beginning accounts payable for the first quarter is budgeted to be $2,940.
Each unit requires 2 pounds of raw material that costs $1.40 per pound. Management desires to end
each quarter with an inventory of raw materials equal to 10% of the following quarter’s production needs.
The desired ending inventory for the fourth quarter is 1,500 pounds. Management plans to pay for 80%
of raw material purchases in the quarter acquired and 20% in the following quarter. Each unit requires
0.60 direct labor-hours and direct labor-hour workers are paid $14.00 per hour.
Required:
1. Prepare the company’s direct materials budget and schedule of expected cash disbursements for
purchases of materials for the upcoming fiscal year.
2. Prepare the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor
workforce is adjusted each quarter to match the number of hours required to produce the forecasted
number of units produced.
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