Answered: Prepare the direct labor budget. (Enter…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Oriole Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2020.

1.		Sales: quarter 1, 28,400 bags; quarter 2, 44,000 bags. Selling price is $62 per bag.
2.		Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.80 per pound and 6 pounds of Tarr at $1.50 per pound.
3.		Desired inventory levels:

Type of Inventory	January 1	April 1	July 1
Snare (bags)	8,100	12,500	18,300
Gumm (pounds)	9,100	10,400	13,100
Tarr (pounds)	14,300	20,200	25,400

4.		Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour.
5.		Selling and administrative expenses are expected to be 15% of sales plus $180,000 per quarter.
6.		Interest expense is $100,000.
7.		Income taxes are expected to be 30% of income before income taxes.

Your assistant has prepared two budgets: (1) the manufacturing overhead budget shows expected costs to be 125% of direct labor cost, and (2) the direct materials budget for Tarr shows the cost of Tarr purchases to be $301,000 in quarter 1 and $427,500 in quarter 2.

(Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)

Quarter
1
2
Direct Materials per Unit
Units to be Produced
Total Pounds Needed for Production
Add
Desired Ending Direct Materials (Pounds)
Total Materials Required
Less +: Beginning Direct Materials (Pounds)
Direct Materials Purchases
Cost per Pound
Total Cost of Direct Materials Purchases
$
$4
%24
%24
%24
%24

Prepare the direct labor budget. (Enter Direct labor time per unit in proportion to hours, e.g. for 45 minutes the proportion
will be 0.75.)
ORIOLE FARM SUPPLY COMPANY
Direct Labor Budget
For the Six Months Ending June 30, 2020
Quarter
S
1
2
Мо
Units to be Produced
Direct Labor Time (Hours) per Unit
Total Required Direct Labor Hours
Direct Labor Cost per Hour
$
Total Direct Labor Cost
$
$
$
%24
%24
%24
%24

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