Problem 13-55 (Static) Prepare a Production Budget (LO 13-4) EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production. Direct materials per bag 1.0 yard cotton at $4 per yard 0.2 yards canvas finish at $12 per yard Direct labor per bag 0.5 hour at $18 per hour Overhead per bag Indirect labor $ 0.60 Indirect materials 0.20 Power 0.40 Equipment costs 1.30 Building occupancy 0.90 Total overhead per unit $ 3.40 You learn that equipment costs and building occupancy are fixed and are based on a normal production of 600,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 750,000 units per year. Labor costs per hour are not expected to change during the year. However, the cotton supplier has informed EcoSacks that it will impose a 20 percent price increase at the start of the coming budget period. No other costs are expected to change. During the coming budget period, EcoSacks expects to sell 540,000 bags. Finished goods inventory is targeted to increase from the current balance of 120,000 units to 210,000 units to prepare for an expected sales increase the year after next as a result of legislation in several states regarding plastic bags. Production will occur evenly throughout the year. Inventory levels for cotton and canvas are expected to remain unchanged throughout the year. There is no work-in-process inventory. Required: a. Prepare a production budget for the coming year. b. Estimate the materials, labor, and overhead costs for the coming year.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Problem 13-55 (Static) Prepare a Production Budget (LO 13-4)
EcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production.
| Direct materials per bag | ||
| 1.0 yard cotton at $4 per yard | ||
| 0.2 yards canvas finish at $12 per yard | ||
| Direct labor per bag | ||
| 0.5 hour at $18 per hour | ||
| Overhead per bag | ||
| Indirect labor | $ | 0.60 |
| Indirect materials | 0.20 | |
| Power | 0.40 | |
| Equipment costs | 1.30 | |
| Building occupancy | 0.90 | |
| Total overhead per unit | $ | 3.40 |
You learn that equipment costs and building occupancy are fixed and are based on a normal production of 600,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 750,000 units per year.
Labor costs per hour are not expected to change during the year. However, the cotton supplier has informed EcoSacks that it will impose a 20 percent price increase at the start of the coming budget period. No other costs are expected to change.
During the coming budget period, EcoSacks expects to sell 540,000 bags. Finished goods inventory is targeted to increase from the current balance of 120,000 units to 210,000 units to prepare for an expected sales increase the year after next as a result of legislation in several states regarding plastic bags. Production will occur evenly throughout the year. Inventory levels for cotton and canvas are expected to remain unchanged throughout the year. There is no work-in-process inventory.
Required:
a. Prepare a production budget for the coming year.
b. Estimate the materials, labor, and overhead costs for the coming year.
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