The La Casa Division of Peters Ltd produces an intricate component used in Peter's major product line. Recently, the divisional manager has been concerned by a lack of coordination between purchasing and production personnel and believes that a monthly budgeting system should be introduced to manage these interdependencies.

As an experiment, La Casa's divisional manager has decided to develop budget information for the third quarter of the current year to test the system, before the full budget system is implemented for the following year. In response to the divisional manager's request, the divisional accountant has accumulated the following data:

Sales:

Sales to 30 June, the first six months of the current year, are 24 000 units. Actual sales in units for May and June, and estimated unit sales for the next four months, are as follows:

May (actual) .............................................................. 4000

June (actual) .............................................................. 4000

July (estimated) .......................................................... 5000

August (estimated) ...................................................... 6000

September (estimated) ................................................... 7000

October (estimated) ....................................................... 7000

The La Casa Division expects to sell 60 000 units during the year ending 31 December.

Direct material:

Data regarding the materials used in the component are shown in the following schedule. The desired monthly ending inventory for all direct materials is an amount sufficient to produce the next month's estimated sales.

Direct labour:
Each component must pass through three different processes to be completed. Data regarding direct labour follows:
Process _______ Direct labour hours per finished component ______ Cost per direct labour
Forming ....................................... 0.400 ......................................... $ 40.00
Assembly ...................................... 1.000 ........................................... 32.00
Finishing ....................................... 0.125 ........................................... 36.00
Manufacturing overhead:
The division produced 27 000 components during the six-month period ending 30 June. The actual variable overhead costs incurred during this six-month period are given in the following schedule divisional accountant believes that the variable overhead costs will be incurred at the same rate of output during the last six months of the year:
Supplies .............................................................................. $59 400
Electricity ............................................................................. 27 000
Indirect labour ....................................................................... 54 000
Other ................................................................................... 8 100
Total variable overhead ......................................................... $148 500
The fixed overhead costs incurred during the first six months amounted to $93 500. Fixed overhead costs are budgeted for the full year as follows:
Supervision .......................................................................... $60 000
Taxes .................................................................................... 7 200
Depreciation .......................................................................... 86 400
Other .................................................................................. 32 400
Total fixed overhead ............................................................ $186 000
Finished goods:
The desired monthly ending inventory of completed components is 80 per cent of the next month's estimated sales. There are 5000 finished units in inventory on 30 June.
Required:
1. Prepare a production budget in units for the La Casa Division for the third quarter ending 30 September.
2. Independent of your answer to requirement 1, assume that the La Casa Division plans to produce 18 000 units during the third quarter ending 30 September and 60 000 units for the year ending 31 December.
(a) Prepare a direct material purchases budget, in units and dollars, for the third quarter ending 30 September.
(b) Prepare a direct labour budget, in hours and dollars, for the third quarter ending 30 September.
(c) Prepare a manufacturing overhead budget for the six-month period ending 31 December.

Transcribed Image Text:

Units of direct material Inventory level 30 June (units) Direct material Cost per unit per finished component No. 101 No. 211 35 000 30 000 14 000 6 $2.40 3.60 No. 242 1.20