Question

Black Diamond Company produces snow skis. Each ski requires 2 pounds of carbon fiber. The company's management predicts that 5,000 skis and 6,000 pounds of carbon fiber will be in inventory on June 30 of the current year and that 150,000 skis will be sold during the next (third) quarter. A set of two skis sells for $300. Management wants to end the third quarter with 3,500 skis and 4,000 pounds of carbon fiber in inventory. Carbon fiber can be purchased for $15 per pound. Each ski requires 0.5 hours of direct labor at $20 per hour. Variable overhead is applied at the rate of $8 per direct labor hour. The company budgets fixed overhead of $1,782,000 for the quarter.

Required:

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

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

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

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

Answer 1

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

Budgeted Sales 150,000

Add Budgeted Closing Stock 3,500

Total Production needed 153,500

Less Budgeted Opening Stock (5,000)

Budgeted Production 148,500

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

Budgeted Production 148,500×2 297,000

Add Budgeted Closing Stock 4,000

Total Production needed 301,000

Less Budgeted Opening Stock (6,000)

Budgeted Purchase 295,000

Note : Carbon fiber can be purchased for $15 per pound

Therefore, Budgeted Purchase = 295,000×$15 = $4,425,000

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

Budgeted Production 148,500

Budgeted Direct labor hours (148,500×0.5) 74,250

Budgeted Direct labor cost (74,250×$20) $1,485,000

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

Variable overhead (74,250×$8) $ 594,000

Fixed overhead $1,782,000

Total $2,376,000

Step-by-step explanation:

A budget is a forecast of future operations.