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Crescent Company produces stuffed toy animals; one of these is “Arabeau the Cow.” Each Arabeau takes 0.20 yard of fabric (white with irregular black splotches) and eight ounces of polyfiberfill. Fabric costs $3.50 per yard and polyfiberfill is $0.05 per ounce. Crescent has budgeted production of Arabeaus for the next four months as follows: Inventory policy requires that sufficient fabric be in ending monthly inventory to satisfy 20 percent of the following month’s production needs and sufficient polyfiberfill be in inventory to satisfy 40 percent of the following month’s production needs. Inventory of fabric and polyfiberfill at the beginning of October equals exactly the amount needed to satisfy the inventory policy. Each Arabeau produced requires (on average) 0.10 direct labor hour. The average cost of direct labor is $15 per hour. Required: 1. Prepare a direct materials purchases budget of fabric for the last quarter of the year showing purchases in units and in dollars for each month and for the quarter in total. 2. Prepare a direct materials purchases budget of polyfiberfill for the last quarter of the year showing purchases in units and in dollars for each month and for the quarter in total. 3. Prepare a direct labor budget for the last quarter of the year showing the hours needed and the direct labor cost for each month and for the quarter in total.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 8, Problem 17E
Textbook Problem
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Crescent Company produces stuffed toy animals; one of these is “Arabeau the Cow.” Each Arabeau takes 0.20 yard of fabric (white with irregular black splotches) and eight ounces of polyfiberfill. Fabric costs $3.50 per yard and polyfiberfill is $0.05 per ounce. Crescent has budgeted production of Arabeaus for the next four months as follows:

Chapter 8, Problem 17E, Crescent Company produces stuffed toy animals; one of these is Arabeau the Cow. Each Arabeau takes

Inventory policy requires that sufficient fabric be in ending monthly inventory to satisfy 20 percent of the following month’s production needs and sufficient polyfiberfill be in inventory to satisfy 40 percent of the following month’s production needs. Inventory of fabric and polyfiberfill at the beginning of October equals exactly the amount needed to satisfy the inventory policy.

Each Arabeau produced requires (on average) 0.10 direct labor hour. The average cost of direct labor is $15 per hour.

Required:

  1. 1. Prepare a direct materials purchases budget of fabric for the last quarter of the year showing purchases in units and in dollars for each month and for the quarter in total.
  2. 2. Prepare a direct materials purchases budget of polyfiberfill for the last quarter of the year showing purchases in units and in dollars for each month and for the quarter in total.
  3. 3. Prepare a direct labor budget for the last quarter of the year showing the hours needed and the direct labor cost for each month and for the quarter in total.

1.

To determine

Prepare a direct materials purchases budget for fabric for the last quarter of the year (show purchases in units and in dollars for each month and for the quarter in total).

Explanation of Solution

Direct Materials Purchases Budget: The direct materials purchases budget is prepared to estimate the quantity of material to be purchased for production. The purchases to be made are calculated by adding the total budgeted production to the ending inventory and then deducting the beginning inventory.

Prepare a direct materials purchases budget for fabric for the last quarter of the year (show purchases in units and in dollars for each month and for the quarter in total):

Table (1)

Working note 1:

Calculate the desired ending inventory:

For October:

Desired ending inventory = 20%of the next month production needs=20% of November production=18,000×20%=3,600

For November:

Desired ending inventory = 20%of the next month production needs=20% of December production</

2.

To determine

Prepare a direct materials purchases budget for polyfiberfill for the last quarter of the year (show purchases in units and in dollars for each month and for the quarter in total).

3.

To determine

Prepare a direct labor budget for the last quarter of the year (show hours needed and the direct labor cost for each month and for the quarter in total).

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Chapter 8 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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