Question

Mitchell Inc. has gathered the following budgeting information for next year and has asked you to prepare their master budget. a. Sales for the final quarter of the prior year total 300 units. Expected sales in units) for the current year are: 270 (Quarter 1), 180 (Quarter 2), 240 (Quarter 3), and 240 (Quarter 4). Sales for the first quarter of the following year total 360 units. The selling price is $610 per unit in the first three quarters of the year, and $640 per unit in the final quarter. Company policy calls for a given quarter's ending finished goods inventory to equal 90% of the next quarter's expected unit sales. The finished goods inventory at the end of the prior year is 243 units, which complies with the policy. The product's manufacturing cost is $121 per unit, including per unit costs of $52 for materials (4 lbs. at $13 per lb.), $44 for direct labor (2 hours x $22 direct labor rate per hour), $17 for variable overhead, and $8 for fixed overhead. Annual fixed overhead consists, incurred evenly throughout the year, consist of depreciation on production equipment, $3,200; factory utilities, $4,000, and other factory overhead of $888. Company policy also calls for a given quarter's ending raw materials inventory to equal 50% of next quarter's expected materials needed for production. The prior year-end inventory is 378 lbs of materials, which complies with the policy. The company expects to have 720 lbs. of materials in inventory at year-end. The company has no work in process inventory at the end of any quarter. Sales representatives' commissions are 14% of sales and are paid in the quarter of the sales. The sales manager's quarterly salary will be $16,000 in the first three quarters of the year, and $17,000 in the final quarter. Quarterly general and administrative expenses include $7,000 administrative salaries, rent expense of $4,000 per quarter, insurance expense of $3,000 per quarter, straight- line depreciation of $3,000 per quarter, and 1% monthly interest on the $150,000 long-term note payable (12% annually). Income taxes will be assessed at 25%, and are paid in the quarter incurred.

Answer 1

Solution:

Mitchell Inc.
Production Budget
For the year ended Dec 31, 2018
	First Qtr.	Second Qtr.	Third Qtr.	Fourth Qtr.	Total
Budgeted sales units	270	180	240	240	930
Add: Desired ending inventory	162	216	216	324	324
Total requirement	432	396	456	564	1254
Less: Beginning inventory	243	162	216	216	243
Budgeted Production units	189	234	240	348	1011

Mitchell Inc.
Factory Overhead budget
For the year ended Dec 31, 2018
	First Qtr.	Second Qtr.	Third Qtr.	Fourth Qtr.	Total
Budgeted production units	189	234	240	348	1011
Variable overhead per unit	$17.00	$17.00	$17.00	$17.00	$17.00
Budgeted Variable overhead	$3,213.00	$3,978.00	$4,080.00	$5,916.00	$17,187.00
Fixed overhead	$272.00	$272.00	$272.00	$272.00	$1,088.00
Total budgeted direct labor costs (dollar)	$3,485.00	$4,250.00	$4,352.00	$6,188.00	$18,275.00