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Production, direct materials, and direct labor budgets
Gerrad Manufacturing has projected sales of its product for the next six months as follows:
January 240 units
February 560 units
March 800 units
April
720 units
May
320 units
June
240 units
The finished product requires 3 pounds of raw material and 10 hours of direct labor.
Gerrad tries to maintain a Finished Goods ending inventory equal to the next two months of sales and a Raw Material ending inventory equal to
one-half of the current month's production needs. January's beginning inventories are expected to conform to company policy.
a. Prepare a production budget for February, March, and April.
Note: Use a negative sign in your schedule to indicate that an amount is subtracted.
Sales
EI
Total units needed
BI
February
March
April
Units produced
b. Prepare a forecast of the units and cost of raw material that will be required for February, March, and April. The expected cost per pound of raw
material is expected to be $2 in February, $2.30 in March, and $2.40 in April.
February
Required raw material units
Cost of raw material purchases $
$
March
$
April
c. Prepare a direct labor budget (assuming a $12 per hour rate) for February, March, and April.
February
March
Units produced
DLHs per unit
Total hours
Cost per DLH
$
$
$
Cost of DL
$
$
$
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