Chapter 22, Problem E22.26E

Preparing an operating budget-direct materials, direct labor, and manufacturing overhead budgets

Trevor, Inc. manufactures model airplane kits and projects production at 500, 570, 300, and 450 kits for the next four quarters. Direct materials are $10 per kits. Indirect material are considered insignificant and are not included in the budgeting process. Beginning Raw Materials Inventory is $200, and the company desires to end each quarter with 30% of the material needed for the next quarter’s production. Trevor desires a balance of $200 in Raw Material Inventory at the end of the fourth quarter. Each kit requires 0.75 hours of direct labor at an allocation base. Variable overhead is $0.75 per kit, and fixed overhead is $160 per quarter. Prepare Trevor’s direct material budget, direct labor budget, and manufacturing overhead budget for the year. Round the direct labor hours needed for production, budgeted overhead costs, and predetermined overhead allocation rate to two decimal places. Round other amounts to the nearest whole number.

Note: Exercises E22-25 must be completed before attempting Exercises E22-26.

E22-26 Preparing an operating budget-cost of goods sold budget
Refer to the budget prepared in ExercisesE22-25. Determine the cost per kit to manufacture the model airplane kits. Trevor projects sales of 400, 100, 700, and 500 kits for the next four quarters. Prepare a cost of goods sold budget for the year. Trevor has no kids in beginning inventory. Round amounts to two decimal places.