Chapter 22, Problem 2PA

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:

Estimated sales for July by sales territory:

Estimated inventories at July 1:

Desired inventories at July 31:

Direct materials used in production:

Anticipated purchase price for direct materials:

Direct labor requirements:

Instructions

Prepare a sales budget for July.

Prepare a production budget for July.

Prepare a direct materials purchases budget for July.

Prepare a direct labor cost budget for July.

To determine

Prepare the sales budget for the month ending July 31.

Explanation of Solution

Budgeting:

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.

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

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

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

Explanation of Solution

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)

Working Note (1):

Calculate the direct material (grates) for backyard chef.

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

Working Note (2):

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

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

Working Note (3):

Calculate the direct material (burner) for backyard chef.

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

Working Note (4):

Calculate the direct material (shelves) for backyard chef.

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

Working Note (5):

Calculate the direct material (grates) for master chef.

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

Working Note (6):

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

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

Working Note (7):

Calculate the direct material (burner) for master chef.

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

Working Note (8):

Calculate the direct material (shelves) for master chef.

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

To determine

Prepare the direct labor cost budget of Company G.

Explanation of Solution

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)

Working Note (9):

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

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

Working Note (10):

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

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

Working Note (11):

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

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

Working Note (12):

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

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

Working Note (13):

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

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

Working Note (14):

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

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