Question

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2020.
January February March April May
Estimated unit sales 10,500 11,700 8,400 8,900 9,000
Sales price per unit $50.10 $47.10 $47.10 $47.10 $47.10
Direct labor hours per unit 2.1 2.1 1.5 1.5 1.5
Wage per direct labor hour $9.00 $9.00 $9.00 $10.00 $10.00
Lowell has a labor contract that calls for a wage increase to $10.00 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1.
Lowell expects to begin the year with 18,690 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 70% of the second following month’s sales.
a) Prepare a production budget for Lowell Company by month and for the first quarter of the year.
b) Prepare a direct labor budget for Lowell Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours.

Answer 1

Answer:

Total Production Budget for the 1st quarter =  26900 units

Total Direct Labor Budget for the Quarter is $459972

Total Wages  Jan.  $ 173502  Feb.   $165375  Mar.   $ 121095

Explanation:

Lowell Company

Production Budget for the 1st Quarter 2020

                                    January     February     March       April      May

Estimated unit sales   10,500         11,700        8,400       8,900   9,000

Add Desired

Ending Inventory     17580             14630        15200

Less

Beginning Inventory   18900         17580        14630                                

Production Budget      9180           8750          8970      

Total Production Budget for the 1st quarter =  26900 units

Ending Inventory Calculations:

Jan Ending Inventory= Feb Sales + 70% March Sales

                                  = 11,700 + 70% of 8,400=  17580      

Feb Ending Inventory= Mar Sales + 70% Apr Sales

                                     =  8,400  + 70% of  8,900=  14630

Mar Ending Inventory= April Sales + 70% May Sales

                                 =8,900 + 70% of 9,000= 15200

Ending Inventory of one month is the beginning inventory of the next month.

Lowell Company

Direct Labor Budget for the 1st Quarter 2020

                                    January     February     March      

Production Budget      9180           8750          8970  

Direct labor Hrs/unit      2.1             2.1               1.5          

Total DLH                   19278          18375        13455

Wage /DLH               $9.00           $9.00        $9.00          

Total Wages            $ 173502        $165375     $ 121095

Total Direct Labor Budget for the Quarter is $459972

We multiply the DLH per unit with number of units. Then the total DLH are multiplied with the wage per DLH to get the total direct labor wages.