Chapter 20, Problem 15E

(1)

To determine

To prepare: Direct material budget for September, October.

Explanation of Solution

Given,
September,
Production units are 4,600.
Raw material required per unit 2 pounds.
Opening raw material is 3,680 units.
October,
Production units are 6,200.
Raw material required per unit 2 pounds.
November,
Production units are 5,800 units.

Direct Material Budget
Particulars	September	October
Production (units)	4,600	6,200
Raw material required (pounds) (working note)	9,200	12,400
Add: Ending raw material (working note)	4,960	4,640
Less: Opening raw material	3,680	4,960
Total material required (pounds) [A]	10,480	12,080
Purchase cost [B]	4	4
Total Purchase Cost ($) $\left[\text{A}\times \text{B}\right]$	49,920	48,320
Table (1)

Working notes:

Formula to compute raw material required,

$\text{Raw material required}=\text{Production}\times \text{Raw material required per unit}$

For September,

Substitute 4,600 units for production and 2 pounds for raw material required per unit.

$\begin{array}{c}\text{Raw material required}=4,600\text{units}\times 2\text{pounds}\\ =\text{9,200}\text{pounds}\end{array}$

For October,

Substitute 6,200 units for production and 2 pounds for raw material required per unit.

$\begin{array}{c}\text{Raw material required}=6,200\text{units}\times 2\text{pounds}\\ =12\text{,400}\text{pounds}\end{array}$

November’s material requirement,

$\text{Raw material required}=\text{Production}\times \text{Raw material required per unit}$

Substitute 5,800 for production and 2 pounds for raw material required per unit.

$\begin{array}{c}\text{Raw material required}=5,800\text{units}\times 2\text{pounds}\\ \text{=11,600}\text{pounds}\end{array}$

Formula to compute ending raw material,

$\text{Ending}\text{raw material}=40\%\times \text{Next}\text{quarter's}\text{material}\text{requirement}$

For September,

Substitute 12,400 for third October’s material requirement,

$\begin{array}{c}\text{Ending}\text{raw material}=40\%\times 12,400\text{units}\\ =4,960\text{units}\end{array}$

For October,

Substitute 11,600 for November’s material requirement,

$\begin{array}{c}\text{Ending}\text{raw material}=40\%\times 11,600\text{units}\\ =4,640\text{units}\end{array}$

(2)

To determine

To prepare: Direct labor budget for September, October.

Explanation of Solution

Given,

September,
Production is 4,600 units.
Labor rate per hour is $16.
Labor hours per unit are 0.8.
October,
Production is 6,200 units.
Labor rate per hour is $16.
Labor hours per unit are 0.8.

Direct Labor Budget
Particulars	September	October
Production(units) $\left[\text{A}\right]$	4,600	6,200
Hours required per unit $\left[\text{B}\right]$	0.8	0.8
Total hours required $\left[\text{A}\times \text{B}\right]$	3,680	4,960
Labor rate per hour	16	16
Total labor cost($)[working note]	58,880	79,360
Table (2)

Working note:

Formula to compute total labor cost,

$\text{Total labor cost}=\text{Total hours required}\times \text{Labor rate per hour}$

For September,

Substitute 3,680 hours for total hours required and $16 for labor rate per hour.

$\begin{array}{c}\text{Total labor cost}=\text{3,680 hours}\times \$16\\ =\text{\$58,880}\end{array}$

For October,

Substitute 4,960 hours for total hours required and $16 for labor rate per hour.

$\begin{array}{c}\text{Total labor cost}=4\text{,960 hours}\times \$16\\ =\text{\$79,360}\end{array}$

(3)

To determine

To prepare: Factory overhead budget for September, October.

Explanation of Solution

Factory Overhead Budget
Particulars	September	October
Total labor hours required (From part 2)$\left[\text{A}\right]$	3,680	4,960
Application rate per labor hour ($) $\left[\text{B}\right]$	2	2
Variable overheads ($) $\left[\text{A}\times \text{B}\right]$	7,360	9,920
Add: Fixed overheads (given)	10,000	10,000
Total factory overheads	17,360	19,920
Table (3)

Hence, Direct material budget of September is $49,920, October.$48,320.
Direct labor budget of September is $58,880, October.$79,360.
Factory Overhead Budget of September is $17,360, October.$19,920.