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Hansell Company’s management wants to prepare budgets for one of its products, duraflex, for July 2010.The firm sells the product for $80 per unit and has the following expected sales (in units) for these months in 2010
The production process requires 4 pounds of dura-1000 and 2 pounds of flexplas. The firm’s policy is to maintain an ending inventory each month equal to 10 percent of the following month’s budgeted sales, but in no case less than 500 units. All materials inventories are to be maintained at 5 percent of the production needs for the next month, but not to exceed 1,000 pounds. The firm expects all inventories at the end of June to be within the guidelines. The purchase department expects the materials to cost $1.25 per pound and $5.00 per pound for dura-1000 and flexplas, respectively. The production process requires direct labor at two skill levels. The rate for labor at the K102 level is $50 per hour and for the K175 level is $20 per hour. The K102 level can process one batch of duraflex per hour; each batch consists of 100 units. The manufacturing of duraflex also requires one-tenth of an hour of K175 workers’ time for each unit manufactured. Variable manufacturing overhead is $1,200 per batch plus $80 per direct labor-hour. The company uses
an actual cost system with a LIFO cost-flow assumption.
On the basis of the preceding data and projections, prepare the following budgets
a. Sales budget for July (in dollars).
b. Production budget for July (in units).
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c. Production budget for August (in units).
d. Direct materials purchases budget for July (in pounds).
e. Direct materials purchases budget for July (in dollars).
f. Direct manufacturing labor budget for July (in dollars).
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