Chapter 21, Problem 21.2APR

Sales, production, direct materials purchases, and direct labor cost budgets

The budget director of Gourmet Grill Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for July is summarized as follows:

1. A. Estimated sales for July by sales territory:

Maine:
Backyard Chef.............................	310 units at $700 per unit
Master Chef...............................	150 units at $ 1,200 per unit
Vermont:
Backyard Chef.............................	240 units at $750 per unit
Master Chef...............................	110 units at $1,300 per unit
New Hampshire:
Backyard Chef.............................	360 units at $750 per unit
Master Chef...............................	180 units at $1,400 per unit

1. B. Estimated inventories at July 1:

Direct materials:		Finished products:
Grates.....................	290 units	Backyard Chef........	30 units
Stainless steel..............	1,500 lbs.	Master Chef...........	42 units
Burner subassemblies......	170 units
Shelves....................	340 units

1. C. Desired inventories at July 31:

Direct materials:		Finished products:
Grates.........................	340 units	Backyard Chef........	40 units
Stainless steel..................	1,800 lbs.	Master Chef...........	20 units
Burner subassemblies..........	155 units
Shelves........................	315 units

1. D. Desired materials used in production

In manufacture of Backyard Chef:
Grates........................................	3 units per unit of product
Stainless steel.................................	24 lbs. per unit of product
Burner subassemblies.........................	2 units per unit of product
Shelves.......................................	4 units per unit of product
In manufacture of Master Chef:
Grates........................................	6 units per unit of product
Stainless steel.................................	42 lbs. per unit of product
Burner subassemblies.........................	4 units per unit of product
Shelves.......................................	5 units per unit of product

1. E. Anticipated purchase price for direct materials:

Grates.................	$15 per unit
Stainless steel..........	$6 per lb.
Burner subassemblies......	$110 per unit
Shelves....................	$10 per unit

1. F. Desired labor requirements:

Backyard Chef:
Stamping Department......................	0.50 hr. at $ 17 per hr.
Forming Department.......................	0.60 hr. at $15 per hr.
Assembly Department......................	1.00 hr. at $14 per hr.
Master Chef:
Stamping Department......................	0.60 hr. at $17 per hr.
Forming Department.......................	0.80 hr. at $15 pr hr.
Assembly Department......................	1.50 hrs. at $14 per hr.

Instructions

1. 1. Prepare a sales budget for July.
2. 2. Prepare a production budget for July.
3. 3. Prepare a direct materials purchases budget for July.
4. 4. Prepare a direct labor cost budget for July.

To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

To Prepare: The sales budget for the month ending July 31.

Explanation of Solution

The following table shows the sales budget.

Company G Sales Budget For the Month Ending July 31
Product and Area	Unit Sales Volume	Unit Selling Price ($)	Total Sales ($)
	(A)	(B)	(A) × (B)
Backyard Chef:
M	310	700	217,000
V	240	750	180,000
N	360	750	270,000
Total	1,070		667,000
Master Chef:
M	150	1,200	180,000
V	110	1,300	143,000
N	180	1,400	252,000
Total	440		575,000
Total Revenue from Sales			1,242,000

Table (1)

To determine

To Prepare: The production budget for the month ending July 31.

Explanation of Solution

The following table shows the production budget.

Company G Production Budget For the Month Ending July 31
Details	Units
	Backyard Chef	Master Chef
Expected Units to be Sold	910	440
Add: Desired Inventory, July 31	40	22
Total Units Required	950	462
Less: Estimated Inventory, July 1	(30)	(32)
Total Units to be Produced	920	430

Table (2)

To determine

To Prepare: The direct materials purchase budget for the month ending July 31.

Answer to Problem 21.2APR

The following table shows the direct materials purchase budget.

Company G Direct Materials Purchase Budget For the Month Ending July 31
Details	Units
	Grates	Stainless Steel	Burner	Shelves
Required units for production:
Backyard Chef	2,760 (1)	22,080 (2)	1,840 (3)	3,680 (4)
Master Chef	2,580 (5)	18,060 (6)	1,720 (7)	2,150 (8)
Add: Desired inventory, July 31	340	1,800	155	315
Total units required	5,680	41,940	3,715	6,145
Less: Estimated inventory, July 1	(290)	(1,500)	(170)	(340)
Total units to be purchased (A)	5,390	40,440	3,545	5,805
Unit price (B)	$15	$6	$110	$10
Total (A) × (B)	$80,850	$242,640	$389,950	$58,050
Total direct materials to be purchased	771,490

Table (3)

Explanation of Solution

Working Notes:

Calculate the direct material (grates) for backyard chef.

$\begin{array}{c}\text{Direct material (grates) cost for backyard chef}\text{=}920\times 3\text{grates}\\ =2,760\end{array}$ (1)

Calculate the direct material (stainless steel) for backyard chef.

$\begin{array}{c}\text{Direct material (stainless steel) cost for backyard chef}\text{=}920\times 24\text{lbs}\\ =22,080\end{array}$ (2)

Calculate the direct material (burner) for backyard chef.

$\begin{array}{c}\text{Direct material (burner) cost for backyard chef}\text{=}920\times 2\\ =1,840\end{array}$ (3)

Calculate the direct material (shelves) for backyard chef.

$\begin{array}{c}\text{Direct material (shelves) cost for backyard chef}\text{=}920\times 4\text{shelves}\\ =3,680\end{array}$ (4)

Calculate the direct material (grates) for master chef.

$\begin{array}{c}\text{Direct material (grates) cost for master chef}\text{=}430\times 6\text{grates}\\ =2,580\end{array}$ (5)

Calculate the direct material (stainless steel) for master chef.

$\begin{array}{c}\text{Direct material (stainless steel) cost for master chef}\text{=}430\times 42\text{lbs}\\ =18,060\end{array}$ (6)

Calculate the direct material (burner) for master chef.

$\begin{array}{c}\text{Direct material (burner) cost for master chef}\text{=}430\times 4\\ =1,720\end{array}$ (7)

Calculate the direct material (shelves) for master chef.

$\begin{array}{c}\text{Direct material (shelves) cost for master chef}\text{=}430\times 5\text{shelves}\\ =2,150\end{array}$ (8)

To determine

To Prepare: The direct labor cost budget of Company G.

Answer to Problem 21.2APR

The following table shows the direct labor cost budget for stamping, forming, and assembly department.

Company G
Direct Labor Cost Budget
For the Month Ending July 31
Particulars	Stamping Department	Forming Department	Assembly Department
Hours Required for Production:
Backyard Chef	460 (9)	552 (10)	920 (11)
Master Chef	258 (12)	344 (13)	645 (14)
Total Hours Required (A)	718	896	1,565
Hourly Rate (B)	$17	$15	$14
Total Cost (A) × (B)	$12,206	$13,440	$21,910
Total Direct Labor Cost	$47,556

Table (4)

Explanation of Solution

Working Notes:

Calculate the hours required for the production of backyard chef in stamping department.

$\begin{array}{c}\text{Hours required for production}\text{=}920\times 0.50\text{hr}\\ =460\text{hrs}\end{array}$ (9)

Calculate the hours required for the production of backyard chef in forming department.

$\begin{array}{c}\text{Hours required for production}\text{=}920\times 0.60\text{hr}\\ =552\text{hrs}\end{array}$ (10)

Calculate the hours required for the production of backyard chef in assembly department.

$\begin{array}{c}\text{Hours required for production}\text{=}920\times 1.0\text{hr}\\ =920\text{hrs}\end{array}$ (11)

Calculate the hours required for the production of master chef in stamping department.

$\begin{array}{c}\text{Hours required for production}\text{=}430\times 0.60\text{hr}\\ =258\text{hrs}\end{array}$ (12)

Calculate the hours required for the production of master chef in forming department.

$\begin{array}{c}\text{Hours required for production}\text{=}430\times 0.80\text{hr}\\ =344\text{hrs}\end{array}$ (13)

Calculate the hours required for the production of master chef in assembly department.

$\begin{array}{c}\text{Hours required for production}\text{=}430\times 1.5\text{hr}\\ =645\text{hrs}\end{array}$ (14)