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Q. 16E

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Financial & Managerial Accounting
Found in: Page 918
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Ornamental Sculptures Mfg. manufactures garden sculptures. Each sculpture requires 8 pounds of direct materials at a cost of $3 per pound and 0.5 direct labor hours at a rate of $18 per hour. Variable manufacturing overhead is charged at a rate of $3 per direct labor hour. Fixed manufacturing overhead is $4,000 per month. The company’s policy is to maintain direct materials inventory equal to 20% of the next month’s materials requirement. At the end of February the company had 5,280 pounds of direct materials in inventory. The company’s production budget reports the following. Prepare budgets for March and April for (1) direct materials, (2) direct labor, and (3) factory overhead.

The budgets for direct materials, direct labor and factory overhead are prepared simultaneously so that proper fund allocationcan be made in each production activity.

See the step by step solution

Step by Step Solution

Step 1: (1) Direct materials

Ornamental Sculptures Mfg.
Direct materials budget
For the month of March and April

Particulars

March

April

Budgeted production

4,600

6,200

Multiply: Materials requirements

8

8

Materials needed

36,800

49,600

Add: Ending inventory

9,920

9,280

Total materials required

46,720

58,880

Less: Beginning inventory

5,280

9,920

Materials to be purchased

41,440

48,960

Multiply: Direct materials costs

$3

$3

Total budgeted direct materials

$124,320

$146,880

Step 2: (2) Direct labor

Ornamental Sculptures Mfg.
Direct labor budget
For the month of March and April

Particulars

MarchApril

Budgeted production

4,6006,200

Multiply: Direct labor hours

0.50.5

Total direct labor hour needed

2,3003,100

Multiply: Direct labor hour rate

$18$18

Total budgeted direct labor

$41,400$55,800

Step 3: (3) Factory overhead

Ornamental Sculptures Mfg.
Factory overhead budget
For the month of March and April

Particulars

March

April

Total direct labor hour rate

2,300

2,100

Multiply: Variable overhead rate

$3

$3

Budgeted variable overhead

$6,900

$6,300

Add: Fixed overhead

$4,000

$4,000

Total budgeted factory overhead

$10,900

$10,300

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