Direct Labor and Production Budgeting: Key Concepts Explained

School

Western Alamance High**We aren't endorsed by this school

Course

BUSINESS 101

Subject

Accounting

Date

Dec 10, 2024

Pages

Uploaded by HighnessOkapiMaster1004

Chapter 8 Problem Session Questions with Solutions 1) Smith Corporation makes and sells a single product called a Pod. Each Pod requires 1.4 direct labor-hours at $9.60 per direct labor-hour. The direct labor workforce is fully adjusted each month to the required workload. Smith Corporation is preparing a Direct Labor Budget for the second quarter of the year.In June the company has budgeted to produce 22,000 Pods. Budgeted direct labor costs incurred in June would be: (Round your intermediate calculations to 2 decimal places.)A) $470,400B) $295,680C) $240,000D) $211,200Answer: BExplanation: Budgeted direct labor cost= Budgeted production × 1.4 direct labor-hours per unit × $9.60 per direct labor-hour= 22,000 units × 1.4 direct labor-hours per unit × $9.60 per direct labor-hour= 22,000 units × $13.44 per unit = $295,6802) The cash budget is the starting point in preparing the master budget.Answer: FALSE

3) The production budget is typically prepared prior to the sales budget.Answer: FALSE4) The direct labor budget begins with the required production in units from the production budget.Answer: TRUE5) The direct labor budget shows the direct labor-hours required to satisfy the production budget.Answer: TRUE

6) When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased.Answer: FALSE7) Seventy percent of Pitkin Corporation's sales are collected in the month of sale, 20% in the month following sale, and 10% in the second month following sale. The following are budgeted sales data for the company: JanuaryFebruaryMarchAprilBudgeted sales$200,000$300,000$350,000$250,000Total budgeted cash collections in April would be:A) $175,000B) $275,000C) $70,000D) $30,000Answer: BExplanation: February sales ($300,000 × 10%)$30,000March sales ($350,000 × 20%)$70,000April sales ($250,000 × 70%)$175,000Total cash collections$275,0008) Parwin Corporation plans to sell 23,000 units during August. If the company has 8,000 units on hand at the start of the month, and plans to have 9,000 units on hand at the end of the month, how many units must be produced during the month?A) 24,000B) 22,000C) 32,000D) 31,000Answer: AExplanation: AugustBudgeted unit sales 23,000Add desired ending finished goods inventory 9,000Total needs 32,000Less beginning finished goods inventory 8,000

Required production in units 24,0009) Stut Corporation, a retailer, plans to sell 28,000 units of Product X during the month of August. If the company has 6,000 units on hand at the start of the month, and plans to have 9,000units on hand at the end of the month, how many units of Product X must be purchased from the supplier during the month?A) 37,000B) 25,000C) 31,000D) 28,000Answer: CExplanation: Budgeted unit sales 28,000Add desired ending merchandise inventory 9,000Total needs 37,000Less beginning merchandise inventory 6,000Required purchases 31,000

10) Jannusch Corporation makes one product. Budgeted unit sales for July, August, September, and October are 10,000, 11,600, 13,300, and 12,700 units, respectively. The ending finished goods inventory should equal 20% of the following month's sales. The budgeted required production for August is closest to:A) 11,600 unitsB) 11,940 unitsC) 14,260 unitsD) 16,580 unitsAnswer: BExplanation: The budgeted required production for August is computed as follows:Budgeted sales in units 11,600Add desired ending inventory* 2,660Total needs 14,260Less beginning inventory** 2,320Required production 11,940*September sales of 13,300 units × 20% = 2,660 units** August sales of 11,600 units × 20% = 2,320 units

11) Hesterman Corporation makes one product and has provided the following information to help prepare the master budget for the next four months of operations:Budgeted selling price per unit$118Budgeted unit sales (all on credit): April 7,800May 9,400June 14,000July 12,100Raw materials requirement per unit of output 3 poundsRaw materials cost$3.00 per poundDirect labor requirement per unit of output 2.8 direct labor-hoursDirect labor wage rate$25.00 per direct labor-hourCredit sales are collected:40% in the month of the sale60% in the following monthThe ending finished goods inventory should equal 40% of the following month's sales. The ending raw materials inventory should equal 20% of the following month's raw materials production needs.The budgeted required production for May is closest to:A) 11,240 unitsB) 9,400 unitsC) 15,000 unitsD) 18,760 unitsAnswer: AExplanation: The budgeted required production for May is computed as follows:Budgeted sales in units 9,400Add desired ending inventory* 5,600Total needs 15,000Less beginning inventory** 3,760Required production 11,240*June sales of 14,000 units × 40% = 5,600 units** May sales of 9,400 units × 40%= 3,760 units

12) Hesterman Corporation makes one product and has provided the following information to help prepare the master budget for the next four months of operations:Budgeted selling price per unit$118Budgeted unit sales (all on credit): April 7,800May 9,400June 14,000July 12,100Raw materials requirement per unit of output 3 poundsRaw materials cost$3.00 per poundDirect labor requirement per unit of output 2.8 direct labor-hoursDirect labor wage rate$25.00 per direct labor-hourCredit sales are collected:40% in the month of the sale60% in the following monthThe ending finished goods inventory should equal 40% of the following month's sales. The ending raw materials inventory should equal 20% of the following month's raw materials production needs.If 39,720 pounds of raw materials are required for production in June, then the budgeted cost of raw material purchases for May is closest to:A) $145,224B) $124,992C) $101,160D) $104,760Answer: DExplanation: The budgeted required production for May is computed as follows:Budgeted sales in units 9,400Add desired ending inventory* 5,600Total needs 15,000Less beginning inventory** 3,760Required production 11,240*June sales of 14,000 units × 40% = 5,600 units** May sales of 9,400 units × 40%= 3,760 units

The budgeted raw material purchases for May are computed as follows:Required production in units of finished goods 11,240Units of raw materials needed per unit of finished goods 3Units of raw materials needed to meet production 33,720Add desired units of ending raw materials inventory* 7,944Total units of raw materials needed 41,664Less units of beginning raw materials inventory** 6,744Units of raw materials to be purchased 34,920* 39,720 pounds × 20% = 7,944 pounds.** 33,720 pounds × 20% = 6,744 pounds.The budgeted cost of raw material purchases for May is computed as follows:Units of raw materials to be purchased (a) 34,920Unit cost of raw materials (b)$3.00Cost of raw materials to be purchased (a) × (b)$104,76013) Rokosz Corporation makes one product and it provided the following information to help prepare the master budget for the next four months of operations:a.The budgeted selling price per unit is $104. Budgeted unit sales for October, November, December, and January are 6,900, 7,100, 11,300, and 15,300 units, respectively. All sales are on credit. b.Regarding credit sales, 30% are collected in the month of the sale and 70% in the following month. c.The ending finished goods inventory equals 20% of the following month's sales. d.The ending raw materials inventory equals 30% of the following month's raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $2.00 per pound. e.The direct labor wage rate is $23.00 per hour. Each unit of finished goods requires 2.5 direct labor-hours. If 60,500 pounds of raw materials are required for production in December, then the budgeted cost of raw material purchases for November is closest to:A) $91,880B) $139,520C) $79,400D) $115,700Answer: AExplanation: The budgeted required production for November is computed as follows:Budgeted sales in units 7,100

Add desired ending inventory* 2,260Total needs 9,360Less beginning inventory** 1,420Required production 7,940*December sales of 11,300 units × 20% = 2,260 units** November sales of 7,100 units × 20%= 1,420 units

The budgeted raw material purchases for November are computed as follows:Required production in units of finished goods 7,940Units of raw materials needed per unit of finished goods 5Units of raw materials needed to meet production 39,700Add desired units of ending raw materials inventory* 18,150Total units of raw materials needed 57,850Less units of beginning raw materials inventory** 11,910Units of raw materials to be purchased 45,940* 60,500 pounds × 30% = 18,150 pounds.** 39,700 pounds × 30% = 11,910 pounds.The budgeted cost of raw material purchases for November is computed as follows:Units of raw materials to be purchased (a) 45,940Unit cost of raw materials (b)$2.00Cost of raw materials to be purchased (a) × (b)$91,880

14) Rokosz Corporation makes one product and it provided the following information to help prepare the master budget for the next four months of operations:a.The budgeted selling price per unit is $104. Budgeted unit sales for October, November, December, and January are 6,900, 7,100, 11,300, and 15,300 units, respectively. All sales are on credit. b.Regarding credit sales, 30% are collected in the month of the sale and 70% in the following month. c.The ending finished goods inventory equals 20% of the following month's sales. d.The ending raw materials inventory equals 30% of the following month's raw materials production needs. Each unit of finished goods requires 5 pounds of raw materials. The raw materials cost $2.00 per pound. e.The direct labor wage rate is $23.00 per hour. Each unit of finished goods requires 2.5 direct labor-hours. The estimated direct labor cost for November is closest to:A) $320,000B) $182,620C) $456,550D) $19,850Answer: CExplanation: The budgeted required production for November is computed as follows:Budgeted sales in units 7,100Add desired ending inventory* 2,260Total needs 9,360Less beginning inventory** 1,420Required production 7,940*December sales of 11,300 units × 20% = 2,260 units** November sales of 7,100 units × 20%= 1,420 unitsThe estimated direct labor cost for November is computed as follows:Required production in units 7,940Direct labor hours per unit 2.5Total direct labor-hours needed (a) 19,850Direct labor cost per hour (b)$23.00Total direct labor cost (a) × (b)$456,550