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17 July, 06:00

MCO Leather manufactures leather purses. Each purse requires 3 pounds of direct materials at a cost of $4 per pound and 0.7 direct labor hours at a rate of $17 per hour. Variable manufacturing overhead is charged at a rate of $3 per direct labor hour. Fixed manufacturing overhead is $13,000 per month. The company's policy is to end each month with direct materials inventory equal to 40% of the next month's materials requirement. At the end of August the company had 3,480 pounds of direct materials in inventory. The company's production budget reports the following. Production Budget September October November Units to be produced 5,300 6,900 6,300 (1) Prepare direct materials budgets for September and October. (2) Prepare direct labor budgets for September and October. (3) Prepare factory overhead budgets for September and October.

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  1. 17 July, 09:30
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    Explanation:

    Giving the following information:

    Direct material:

    Each purse requires 3 pounds of direct materials for $4 per pound.

    The company's policy is to end each month with direct materials inventory equal to 40% of the next month's materials requirement.

    At the end of August the company had 3,480 pounds of direct materials in inventory.

    Direct labor:

    0.7 direct labor hours at a rate of $17 per hour.

    Overhead:

    Variable manufacturing overhead is charged at a rate of $3 per direct labor hour.

    Fixed manufacturing overhead is $13,000 per month. T

    Production Budget:

    September = 5,300 units

    October = 6,900 units

    November = 6,300 units

    1) Direct material budget:

    September (in pounds):

    Production = 5,300*3 = 15,900

    Desired ending inventory = (6,900*3) * 0.4 = 8,280

    Beginning inventory = (3,480)

    Total pounds = 20,700

    Total cost = 20,700*4 = $82,800

    October (in pounds):

    Production = 6,900*3 = 20,700

    Desired ending inventory = (6,300*3) * 0.4 = 7,560

    Beginning inventory = (8,280)

    Total pounds = 19,980

    Total cost = 19,980*4 = $79,920

    2) Direct labor:

    September:

    Total direct labor hours = 0.7*5,300 = 3,710

    Total cost = 3,710*17 = $63,070

    October:

    Total direct labor hours = 0.7*6,900 = 4,830

    Total cost = 4,830*17 = $82,110

    3) Manufacturing overhead:

    September:

    Variable overhead = $3*3,710 = $11,130

    Fixed overhead = 13,000

    Total overhead = $24,130

    October:

    Variable overhead = $3*4,830 = $14,490

    Fixed overhead = 13,000

    Total overhead = $27,490
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