Question

The Production Department of Hruska Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced 10,400 9,400 11,400 12,400
Each unit requires 0.25 direct labor-hours and direct laborers are paid $12.00 per hour. In addition, the variable manufacturing overhead rate is $1.70 per direct labor-hour. The fixed manufacturing overhead is $84,000 per quarter. The only noncash element of manufacturing overhead is depreciation, which is $24,000 per quarter.
Required:
1. Prepare the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.
2. Prepare the company’s manufacturing overhead budget.

Answer 1

The best production method based on costs is Method 1, both when labor is $100/unit and when labor cost increases to $200/unit. This method remains the most cost-effective in both scenarios.

Step-by-step explanation:

When assessing the best production method, one must consider the cost of labor and capital. Initially, labor costs $100 per unit, and capital costs $400 per unit. The total costs for each method are calculated as follows:

Method 1: (50 units of labor × $100) + (10 units of capital × $400) = $5000 + $4000 = $9000

Method 2: (20 units of labor × $100) + (40 units of capital × $400) = $2000 + $16000 = $18000

Method 3: (10 units of labor × $100) + (70 units of capital × $400) = $1000 + $28000 = $29000

Therefore, Method 1 is the most cost-effective with the initial labor and capital costs.

When the cost of labor rises to $200 per unit, the total costs are recalculated:

Method 1: (50 units of labor × $200) + (10 units of capital × $400) = $10000 + $4000 = $14000

Method 2: (20 units of labor × $200) + (40 units of capital × $400) = $4000 + $16000 = $20000

Method 3: (10 units of labor × $200) + (70 units of capital × $400) = $2000 + $28000 = $30000

With the increased labor cost, Method 1 remains the most cost-effective production method.

Answer 2

Answer and Explanation:

The preparation is presented below:

1. For Direct labor budget

Particulars 1st quarter 2nd quarter 3rd quarter 4th quarter Year

Production Units 10400 9400 11400 12400 43600

direct labor time

per unit (hr) 0.25 0.25 0.25 0.25 0.25

Total direct labor

hour needed 2600 2350 2850 3100 10900

direct labor cost

per hour 12 12 12 12 12

Total direct

labor cost 31200 28200 34200 37200 130800

2. For Manufacturing overhead budget

Particulars 1st quarter 2nd quarter 3rd quarter 4th quarter Year

Variable

manufacturing overhead 4420 3995 4845 5270 18530

Fixed manufacturing

overhead 84000 84000 84000 84000 336000

Total manufacturing

overhead 88420 87995 88845 89270 354530

Less: depreciation -24000 -24000 -24000 -24000 -96000

cash disbursement

for manufacturing overhead 64420 63995 64845 65270 258530