Bike Heaven manufactures gears for racing bikes. Management is beginning the budgeting process for 2021. This year
Question:
Bike Heaven manufactures gears for racing bikes. Management is beginning the budgeting process for 2021. This year the company will be adopting new equipment which is expected to reduce labour costs, starting in February. In addition, the union has negotiated an increase in the wage rate effective March 1. The company will have 100 gears in stock on January 1. The company has a policy of holding 5% of the following month’s projected sales in inventory at all times, to allow for unexpected orders. In addition, the company uses 3 units of direct materials for each gear and had a policy of holding 10% of the next month’s production requirements as ending inventory.
The above information is the same for May as it is for April.
Required a) Prepare the following budgets for the first quarter of 2021. Be sure to show supporting calculations: (1) sales budget, (2) production budget in units, (3) direct materials budget in units and cost, and (4) direct labour budget in hours.