question 3

Question #3 - 20 marks Refer to Question #2 (see below). Consider the following additional information: (1) each unit of Supermix requires 12 minutes of direct labour compensated at a rate of $15 per hour, (2) factory overhead is applied on the basis of direct labour dollars, (3) variable overhead is budgeted at 120% of direct labour dollars, and (4) fixed overhead is budgeted to be $40,000 per month. Assume the finished goods inventories at the end of June 30 cost $8.25 per unit, and that raw materials inventories at the end of June 30 were valued at $14,000. REQUIRED: Preparation component 1. Prepare monthly direct labour and factory overhead budgets for the third quarter; also show the total for the quarter. [Note: Factory Overhead is the same as Manufacturing Overhead.] 2. Prepare the cost of goods manufactured and cost of goods sold budgets for the third quarter (in total). [Note: The chapter on Budgeting does not contain an example of the COGM Budget or the COGS Budget. Essentially, they would look like the schedule of COGM and COGS presented in Chapter 2.] Question #2 Pearl Products Limited of Sarnia, Ontario, manufactures and distributes toys throughout central Canada. Three cubic centimetres (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company's products. The company expects to pay $0.25 per cc of H300 to its suppliers. The company is now planning its raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements: a. The finished goods inventory on hand at the end of each month must be equal to 3,000 units Supermix plus 20% of next month's sales. The finished goods inventory on June 30 is budgeted to be 10,000 units. b. The raw materials inventory on hand at the end of each month must be equal to one-half of the following month's raw materials requirements. The raw materials inventory on June 30 is budgeted to be 54,000 cc of solvent H300. c. The company maintains no goods in process inventories. Estimated sales for July to December are as follows: Month Month Budgeted Sales (units) July 35,000 August 40,000 September 50,000 October 30,000 November 20,000 December 10,000 REQUIRED: Preparation component 1. Prepare a production budget for Supermix for July to October. 2. Prepare a budget showing the quantity of solvent H300 to be purchased in July, August, and September, and for the quarter in total. Analysis component 3. Examine the production budget you prepared above. Why will the company produce more units than it sells in July and August, and fewer units than it sells in September and October