Question - Preparing Operating Budget Components
Boscoe Power Tools manufactures a wide variety of tools and accessories. One of its more popular craft-related items is the cord free glue gun. Each glue gun sells for $30. Boscoe expects the following unit sales:
|
January
|
8,000
|
|
February
|
7,400
|
|
March
|
8,700
|
|
April
|
9,500
|
|
May
|
9,150
|
Boscoe's ending finished goods inventory policy is 25 percent of the following month's budgeted sales.
Suppose each glue gun takes approximately 0.5 hours to manufacture, and Boscoe pays an average labor wage of $18 per hour.
Each glue gun requires a heating element that Boscoe purchases from a supplier at a cost of $1.25 each. The company has an ending raw materials inventory policy of 30 percent of the following month's production requirements. Materials other than the heating elements total $3.25 per glue gun.
Manufacturing overhead for this product includes $96,900 annual fixed overhead (based on production of 102,000 units) and variable manufacturing overhead of $1.00 per unit. Boscoe's selling expenses are 5 percent of sales dollars, and administrative expenses for this product are fixed at $17,500 per month.
Required: Prepare the following for the first quarter:
1. Sales budget.
2. Production budget.
3. Raw materials purchases budget for the heating element.
4. Direct labor budget.