Chapter 20, Problem 16E

(1)

To determine

To prepare: Direct material budget for March, April.

Explanation of Solution

Given,
March,
Production units are 3,300.
Raw material required per unit 8 pounds.
Opening raw material is 5,280 units.
April,
Production units are 4,600.
Raw material required per unit 8 pounds.
May,
Production units are 4,800 units.

Direct Material Budget
Particulars	March	April
Production (units)	3,300	4,600
Raw material required (pounds) (working note)	26,400	36,800
Add: Ending raw material (working note)	7,360	7,680
Less: Opening raw material	5,280	7,360
Total material required (pounds) [A]	28,480	37,120
Purchase cost [B]	8	8
Total Purchase Cost ($) $\left[\text{A}\times \text{B}\right]$	227,840	296,960
Table (1)

Working notes:

Formula to compute raw material required,

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

For March,

Substitute 3,300 units for production and 8 pounds for raw material required per unit.

$\begin{array}{c}\text{Raw material required}=3,300\text{units}\times 8\text{pounds}\\ =26\text{,400}\text{pounds}\end{array}$

For April,

Substitute 4,600 units for production and 8 pounds for raw material required per unit.

$\begin{array}{c}\text{Raw material required}=4,600\text{units}\times 8\text{pounds}\\ =36\text{,800}\text{pounds}\end{array}$

May’s material requirement,

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

Substitute 4,800 for production and 8 pounds for raw material required per unit.

$\begin{array}{c}\text{Raw material required}=4,800\text{units}\times 8\text{pounds}\\ =\text{38,400}\text{pounds}\end{array}$

Formula to compute ending raw material,

$\text{Ending}\text{raw material}=20\%\times \text{Next}\text{quarter's}\text{material}\text{requirement}$

For March,

Substitute 36,800 for third October’s material requirement,

$\begin{array}{c}\text{Ending}\text{raw material}=20\%\times 36,800\text{units}\\ =7,360\text{units}\end{array}$

For April,

Substitute 38,400 for May’s material requirement,

$\begin{array}{c}\text{Ending}\text{raw material}=20\%\times 38,400\text{units}\\ =7,680\text{units}\end{array}$

(2)

To determine

To prepare: Production budget for March, April.

Explanation of Solution

Given,
March,
Production is 3,300 units.
Labor rate per hour is $18.
Labor hours per unit are 0.5.
April,
Production is 4,600 units.
Labor rate per hour is $18.
Labor hours per unit are 0.5.

Direct Labor Budget
Particulars	March	April
Production (units) $\left[\text{A}\right]$	3,300	4,600
Hours required per unit $\left[\text{B}\right]$	0.5	0.5
Total hours required $\left[\text{A}\times \text{B}\right]$	1,650	2,300
Labor rate per hour	18	18
Total labor cost ($) [working note]	29,700	41,400
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 March,

Substitute 1,650 hours for total hours required and $18 for labor rate per hour.

$\begin{array}{c}\text{Total labor cost}=1\text{,650 hours}\times \$18\\ =\text{\$29,700}\end{array}$

For April,

Substitute 2,300 hours for total hours required and $18 for labor rate per hour.

$\begin{array}{c}\text{Total labor cost}=2\text{,300 hours}\times \$18\\ =\text{\$41,400}\end{array}$

(3)

To determine

To Prepare: Factory overhead budget for March, April.

Explanation of Solution

Factory Overhead Budget
Particulars	March	April
Total labor hours required (From part 2)$\left[\text{A}\right]$	1,650	2,300
Application rate per labor hour ($)$\left[\text{B}\right]$	3	3
Variable overheads($) $\left[\text{A}\times \text{B}\right]$	4,950	6,900
Add: Fixed overheads (given)	4,000	4,000
Total factory overheads	8,950	10,900
Table (3)

Hence, Direct material budget of March is $227,840, April.$296,960.
Direct labor budget of March is $29,700, April.$41,400.
Factory Overhead Budget of March is $8,950, April.$10,900.