Exercise 7-15 Manufacturing: Direct materials, direct labor, and overhead budgets LO P1

MCO Leather Goods manufactures leather purses. Each purse requires 3 pounds of direct materials at a cost of $4 per pound and 0.7 direct labor hours at a rate of $10 per hour. Variable manufacturing overhead is charged at a rate of $2 per direct labor hour. Fixed manufacturing overhead is $11,000 per month. The companys policy is to end each month with direct materials inventory equal to 20% of the next months materials requirement. At the end of August the company had 4,580 pounds of direct materials in inventory. The companys production budget reports the following.

Production Budget	September		October		November
Units to be produced	4,800		7,200		6,500

(1) Prepare direct materials budgets for September and October. (2) Prepare direct labor budgets for September and October. (3) Prepare factory overhead budgets for September and October.

MCO LEATHER GOODS
Direct Materials Budget
For the Months of September and October
	September	October
Budgeted production (units)
Materials requirements per unit (lbs.)
Materials needed for production (lbs.)
Budgeted ending inventory (lbs.)
Total materials requirements (lbs.)
Budgeted beginning inventory (lbs.)
Materials to be purchased (lbs.)
Direct material cost per lb.
Total budgeted direct materials

MCO LEATHER GOODS
Direct Labor Budget
For the Months of September and October
	September	October
Budgeted production (units)
DL hours required per unit
Total direct labor hours needed
Direct labor rate per hour
Total budgeted direct labor

MCO LEATHER GOODS
Factory Overhead Budget
For the Months of September and October
	September	October
Total direct labor hours needed
VOH rate per DL hour
Budgeted variable overhead
Budgeted fixed overhead
Total budgeted factory overhead