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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Production and direct labor cost budgets

Levi Strauss & Co. manufactures slacks and jeans under a variety of brand names, such as Dockers® and 501® Jeans. Slacks and jeans are assembled by a variety of different sewing operations. Assume that the sales budget for Dockers and 501 Jeans shows estimated sales of 23,600 and 53,100 pairs, respectively, for May. The finished goods inventory is assumed as follows:

  Dockers 501 Jeans
May 1 estimated inventory 670 1,660
May 31 desired inventory 420 1,860

Assume the following direct labor data per 10 pairs of Dockers and 501 Jeans for four different sewing operations:

  Direct Labor per 10 Pairs
Dockers 501 Jeans
Inseam 18 minutes 9 minutes
Outerseam 20 14
Pockets 6 9
Zipper 12 6
Total 56 minutes 38 minutes

  a.    Prepare a production budget for May. Prepare the budget in two columns: Dockers® and 501 Jeans®.

  1. b. Prepare the May direct labor cost budget for the four sewing operations, assuming a $13 wage per hour for the inseam and outerseam sewing operations and a $15 wage per hour for the pocket and zipper sewing operations. Prepare the direct labor cost budget in four columns: inseam, outerseam, pockets, and zipper.

To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

Production Budget shows the quantities of units that a company must produce to meet the budgeted sales and inventory.

To Prepare: The production budget and direct labor cost budget of Company L.

Explanation

(a)

The following table shows the production budget for D and 501 J.

Company L
Production Budget
For the Month Ending May 31
ParticularsUnits
D501 J
Expected units to be sold23,60053,100
Add: Desired inventory, June 304201,860
Total Units Required24,02054,960
Less: Estimated Inventory, June 1(670)(1,660)
Total Units To Be Produced23,35053,300

Table (1)

Therefore, the total units to be produced for D and 501J are 23,350 and 53,300 respectively.

(b)

The following table shows the direct labor cost budget for inseam, outer-seam, pockets, and zipper.

Company L
Direct Labor Cost Budget
For the Month Ending May 31
ParticularsInseamOuter-seamPocketsZipper
Minutes Required For Production:    
     D42,030 (1)46,700 (2)14,010 (3)28,020 (4)
     501 J47,970 (5)74,620 (6)47,970 (7)31,980(8)
Total Minutes(A)90,000121,32061,98060,000
Total Hours Required (B) =(A)/601,5002,0221,0331,000
Hourly Rate(C)$13$13$15$15
Total (B) × (C)$19,500$26,286$15,495$15,000
Total Direct Labor Cost76,281

Table (1)

Working Notes:

Calculate the minutes required for the production of D in inseam.

Minutes required for production=23,35010pairs×18min=42,030mins (1)

Calculate the minutes required for the production of D in outer-seam.

Minutes required for production=23,35010pairs×20min=46,700mins (2)

Calculate the minutes required for the production of D in pockets

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