Question

Black Diamond Company produces snow skis. Each ski requires 2 pounds of carbon fiber. The company’s management predicts that 6,400 skis and 7,400 pounds of carbon fiber will be in inventory on June 30 of the current year and that 164,000 skis will be sold during the next (third) quarter. A set of two skis sells for $440. Management wants to end the third quarter with 4,900 skis and 5,400 pounds of carbon fiber in inventory. Carbon fiber can be purchased for $13 per pound. Each ski requires 0.5 hours of direct labor at $18 per hour. Variable overhead is applied at the rate of $8 per direct labor hour. The company budgets fixed overhead of $1,796,000 for the quarter. Required:

1. Prepare the third-quarter production budget for skis.

2. Prepare the third-quarter direct materials (carbon fiber) budget; include the dollar cost of purchases.

3. Prepare the direct labor budget for the third quarter.

4. Prepare the factory overhead budget for the third quarter.

Answer 1

June 30:

estimated inventory of skis = 6,400

estimated inventory of carbon fiber = 7,400

164,000 skis will be sold during next quarter

each pair of skis sells for $440

Inventory for September 30:

estimated inventory of skis = 4,900

estimated inventory of carbon fiber = 5,400

cost of carbon fiber = $13 per pound x 2 = $26 per ski

direct labor = $9 per ski

variable overhead per ski = $4

fixed overhead = $1,796,000

1 ) Production budget:

expected sales 164,000 units

- beginning inventory 6,400 units

+ ending inventory 4,900 units

budgeted production 162,500 units

2) Materials budget

budgeted production 162,500 units

materials required per unit 2 pounds

total materials need for Px 325,000 lbs.

+ lbs. ending inventory 5,400 lbs.

total materials needed 330,400 lbs.

- beginning inventory 7,400 lbs.

purchase requirement 323,000 lbs.

cost per pound $13

total materials budget $4,199,000

3) Direct labor budget

budgeted production 162,500 units

direct labor per unit 0.5 hours

total direct labor hours 81,250 hours

cost per direct labor hour $18

total direct labor budget $1,462,500

4) Factory overhead budget

total direct labor hours 81,250 hours

cost per direct labor hour $8

total factory overhead $650,000

fixed overhead $1,796,000

total factory overhead budget $2,446,000

Answer 2

1. Production budget for third quarter for skis - 162,500 skis

2. Direct materials budget for Carbon Fiber for quarter 3 - 323,000 pounds

Cost of carbon Fiber purchases - $ 4,199,000

3. Direct Labor budget for quarter 3 - $ 1,462,500

4. Factory overhead budget for quarter 3 - $ 2,446,000

Step-by-step explanation:

Computation of Production budget for quarter 3 for skis

Closing inventory- skis end of quarter 3 4,900 skis

Add: Sales for quarter 3 - skis 164,000 skis

Less: Opening inventory - skis ( 6,400) skis

Production for skis in units 162,500 skis

Computation of direct material budget for quarter 3

Closing inventory Carbon fiber 5,400 pounds

Add: Consumption of Carbon fiber in production

162,500 skis * 2 pounds 325,000 pounds

Less: Closing inventory Carbon fiber ( 7,400) pounds

Direct Materials carbon Fiber Budgeted Purchases 323,000 pounds

Cost of Carbon Fiber Purchases ($ 13*323,000 pounds) $ 4,199,000

Computation of direct labor budget for quarter 3

Production of skis for quarter 3 162,500 skis

Direct Labor hours per unit 0.5 hours

Cost per Direct Labor Hours $ 18 per hour

Total Direct Labor Budget (162,500 skis* 0.5 hours * $ 18 ) $ 1,462,500

Computation of Factory overhead budget for quarter 3

Production of skis for quarter 3 162,500 skis

Variable costs $ 8 per labor hours ( 81,250 hours * $ 8) $ 650,000

Fixed overhead per quarter $ 1,796,000

Total overhead for quarter 3 $ 2,446,000