Concept explainers
Material Budget:
This budget shows the quantity of material required to be purchased for meeting the production needs. It also shows the price of the material required to be purchased.
Labor Budget:
This budget shows the direct labor hours required to produce the desired production quantity and the number of hours needed. It is helpful for the management in planning its labor force requirements.
Production Budget:
It is the budget which provides the details regarding the amount of units to be produced by the entity in order to meet the requisite demand. Formula to calculate production budget,
Factory
It is the budget which contains every cost other than labor and raw material which are incurred by an entity during manufacturing.
1.
To prepare: Production budget for the second quarter.
Explanation of Solution
Given,
Second quarter,
Sale is 250,000 units.
Opening inventory is 8,000 units.
Ending inventory is 6,000 units.
Production Budget | |
Particulars | Second quarter (units) |
Sales | 250,000 |
Add: Ending inventory | 6,000 |
Less: Opening inventory | 8,000 |
Production | 248,000 |
Table(1) |
Hence, budgeted production is 248,000 units.
2.
To prepare: Direct material budget the second quarter.
2.
Explanation of Solution
Second quarter,
Production units are 248,000. (From part 1)
Raw material required per unit 3 pounds. (Given)
Opening raw material is 15,000 units. (Given)
Ending raw material is 12,000 pounds. (Given)
Purchase cost is $4.
Direct Material Budget | |
Particulars | Second quarter |
Production (units) | 248,000 |
Raw material required (pounds) (working note) | 744,000 |
Add: Ending raw material (given) | 12,000 |
Less: Opening raw material(given) | 15,000 |
Total material required (pounds) [A] | 741,000 |
Purchase cost ($) [B] | 4 |
Total purchase cost ($) | 2,964,000 |
Table(2) |
Working notes:
Formula to compute raw material required,
For Second quarter,
Substitute 248,000 units for production and 3 pounds for raw material required per unit.
(3)
To prepare: Direct labor budget for the second quarter.
(3)
Explanation of Solution
Second quarter,
Production units are 248,000. (From part 1)
Labor rate per hour is $18. (Given)
Labor hours per unit are 0.5. (Given)
Direct Labor Budget | |
Particulars | Second quarter |
Production (units) | 248,000 |
Hours required per unit | 0.5 |
Total hours required | 124,000 |
Labor rate per hour | 18 |
Total labor cost ($) [working note] | 2,232,000 |
Table(3) |
Working note:
Formula to compute total labor cost,
For Second quarter,
Substitute 124,000 units for total hours required and 18 for labor rate per hour.
4.
To prepare: Factory overhead budget for second quarter.
4.
Explanation of Solution
Factory Overhead Budget | |
Particulars | Second quarter |
Total labor hours required (From part 3) | 124,000 |
Application rate of variable overheads per labor hour ($) | 12 |
Variable overheads ($) | 1,488,000 |
Add: Fixed overheads | 1,776,000 |
Total factory overheads | 3,264,000 |
Table(4) |
Hence, production budget of second quarter is 248,000 units, direct labor budget of second quarter is $1,485,000. direct material budget of second quarter is $4,425,000. factory overhead budget of second quarter is $3,264,000.
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