MANAGEMENT ACCOUNTING & CONTROLLERSHIP

LEARNING ACTIVITY 1

BUDGET PROCESS

The following data are provided for Erlano Corporation:

1. Sales: Sales through June 30, 2019, the first 6 months of the current year, are 24,000 units. Expected sales for the full year are 60,000 units. Actual sales in units for May and June and estimated unit sales for the next 4 months are as follows:

May	4,000
June	4,000
July	5,000
August	6,000
September	7,000
October	7,000

1. Direct Materials: At each month end, Erlano wants to have sufficient materials on hand to produce the next months estimated sales. Data regarding materials are as follows:

Direct Materials	Units of Material Required	Cost per Unit	Units in Inventory, June 30, 2019
101	6	Php 0.40	35,000
211	4	3.60	32,000
242	2	1.20	14,000

1. Direct Labor:

Process	Hours per Unit	Hourly Labor Rate
Forming	80	P 8.00
Assembly	2.00	5.50
Finishing	0.25	6.00

1. Factory Overhead: The company produced 27,000 units during the 6-month period through June 30, 2019 and expects to produce 60,000 units during the year. The actual variable factory overhead costs incurred during this 6-month period are as follows. The Controller believes that these costs will be incurred at the same rate during the remainder of 2019.

Supplies	P 59,400
Electricity	27,000
Indirect Labor	54,000
Other	21,600
Total Variable Factory Overhead	P 162,000

The fixed factory overhead costs incurred during the first 6 months of 2019 amounted to Php 93,000. Fixed overhead costs are budgeted for the full year as follows:

Supervision	P 60,000
Property Tax	7,200
Depreciation	66,400
Other	32,400
Total Fixed Factory Overhead	P 186,000

1. Finished goods inventory: The desired monthly ending finished goods inventory in units is 80% of the next months estimated sales. These are 5,600 finished units in the June 30, 2019 inventory.

Required:

1. Prepare the production budget for the third quarter ending September 30, 2019.
2. Prepare the direct materials purchases budget for the third quarter.
3. Prepare the direct labor budget for the third quarter.
4. Prepare the factory overhead budget for the 6 months ending December 31, 2019, presenting two figures for total variable and total fixed overhead.