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Concept explainers
(1)
To prepare: Direct material budget for September, October.
(1)
![Check Mark](/static/check-mark.png)
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 ($) | 49,920 | 48,320 |
Table (1) |
Working notes:
Formula to compute raw material required,
For September,
Substitute 4,600 units for production and 2 pounds for raw material required per unit.
For October,
Substitute 6,200 units for production and 2 pounds for raw material required per unit.
November’s material requirement,
Substitute 5,800 for production and 2 pounds for raw material required per unit.
Formula to compute ending raw material,
For September,
Substitute 12,400 for third October’s material requirement,
For October,
Substitute 11,600 for November’s material requirement,
(2)
To prepare: Direct labor budget for September, October.
(2)
![Check Mark](/static/check-mark.png)
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 $16.
Labor hours per unit are 0.8.
Direct Labor Budget | ||
Particulars | September | October |
Production(units) | 4,600 | 6,200 |
Hours required per unit | 0.8 | 0.8 |
Total hours required | 3,680 | 4,960 |
Labor rate per hour | 16 | 16 |
Total labor cost($)[working note] | 58,880 | 79,360 |
Table (2) |
Working note:
Formula to compute total labor cost,
For September,
Substitute 3,680 hours for total hours required and $16 for labor rate per hour.
For October,
Substitute 4,960 hours for total hours required and $16 for labor rate per hour.
(3)
To prepare: Factory
(3)
![Check Mark](/static/check-mark.png)
Explanation of Solution
Factory Overhead Budget | ||
Particulars | September | October |
Total labor hours required (From part 2) | 3,680 | 4,960 |
Application rate per labor hour ($) | 2 | 2 |
Variable overheads ($) | 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.
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Chapter 7 Solutions
Managerial Accounting
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