Production budgets are the heart and soul of budgeting for a manufacturing firm. How much should the company produce?
Production budgets are the heart and soul of budgeting for a manufacturing firm. How much should the company produce? What level of raw materials should be purchased? How much labor will be needed? What training level is necessary for that labor? What capacity is needed?
These are some of the questions that will be addressed as the production budgets are developed.
To help you gain the necessary skills to complete the weekly problems, you will be provided with problem demonstrations for various budget types. This week, we will focus on methods used to prepare the production budgets.
It is suggested that you view this problem demonstration before attempting to do this week’s homework. Enjoy the demonstration!!
Production Budgets (Links to an external site.)
Transcript
Scenario: Production, Purchase, and Labor Budgets
The Mullins Company finished their sales projections for the coming year. The company produces one product. Part of next year’s sales projections are as follows.
Projected Sales in Units
July
150,000
August
170,000
September
164,000
October
180,000
November
205,000
The budget committee has also completed the following information on inventories.
Raw Materials
Ending Balance, June, 25,000 lbs
Desired ending levels (monthly 5% of next month’s production needs)
Work-In-Progress
None
Finished Goods Inventory
Ending Balance, June, 14,000 units
Desired ending levels: 15% of next month’s sales
The Engineering Department has developed the following standards upon which the production budgets will be developed.
Item
Standard
Material usage
4 pounds per unit
Material price per pound
$1.80 per pound
Labor usage
0.4 hours per unit
Labor rate
$35 per hour
Machine hours
3 machine hours per unit
The Mullins Company uses a modified allocation method for allocating overhead costs. The rates that will be used in the coming year are as follows.
Overhead Item
Allocation Rate
Utilities
$0.60 per machine hour
Inspection
$11 per unit produced
Factory supplies
$3 per unit produced
Depreciation
$40,000 per month
Supervision
$15,000 per month
Assignment Details
Important!
It is expected that the assignment will be completed using an Excel spreadsheet using formulas.
Prepare the following production budgets for July, August, and September for the Mullins Company.
Production Budget
Materials Purchases Budget
Direct Labor Budget
Overhead Budget
Manufactured Budget (for the quarter, quarter totals only)
Submit your Excel spreadsheet with its formulas to the Week 3 Homework Submission page.
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