Question & Answer: 3. Refer to r Refer to requirement 2. How could the reduction in material and labor costs be accomplished there any problems with this…..

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3. Refer to r Refer to requirement 2. How could the reduction in material and labor costs be accomplished there any problems with this plan? 6-32 Revenue and production budgets. (CPA, adapted) The Sabat Corporation manufactures and sells two products: Thingone and Thingtwo. In July 2013, Sabat’s budget department gathered the following data to prepare budgets for 2014 2014 Projected Sales Product Units Price Thingone 62,000 $172 Thingtwo 4,000 $264 2014 Inventories in Units Expected Target January 1, 2014 December 31, 2014 Product Thingone Thingtwo 21,000 3,000 26,000 14,000 The following direct materials are used in the two products: Amount Used per Unit Thingone Thingtwo Unit pound pound each Direct Material

Expert Answer

1	Revenue budget
		Units	Price	Total
	Thing one	62000	172	10664000
	Thing two	46000	264	12144000
	Budgeted Revenue			22808000

3	Production Budget
		Thing one	Thing two
	Budgeted sales in units	62000	46000
	Add: Targeted finished goods inventory,closing	26000	14000
	Total requirements	88000	60000
	Deduct: Finished goods inventory, opening	-21000	-13000
	Units to be produced	67000	47000

4	Direct materials purchases budget
	in quantities
		A	B	C
	Direct Materials to be used in production	335000	201000
	Thing one ( budgeted production of
	(67000 units 5 pounds, 3 pounds)
	Thing two ( Budgeted production of	282000	188000	94000
	(47000 units at 6,4,2)
	Add: Target ending inventories, closing	40000	35000	12000
	Total requirements	657000	424000	106000
	Deduct: beginning inventory	-37000	-32000	-10000
	Direct materials to be purchased	620000	392000	96000

5	Direct Materials purchases budget in dollars
		Budgeted purchases	Expected purchases
		Units	Price per unit
	Direct Materials A	620000	11	6820000
	Direct Material B	392000	6	2352000
	Direct Material c	96000	5	480000
	Budgeted purchases			9652000

6	Direct Material Labour Budget (in dollars)
		Budgeted production	Direct Manufacturing labor hours unit	Total hours	Rate per hour	Total
	Thing one	67000	3	201000	11	2211000
	Thing two	47000	4	188000	14	2632000
						4843000

7	Budgeted finished goods inventory			Total
	Thing One
	A	5 X 11	55
	B	3 X6	18
	C	0 X5	0	73
	Direct Manufacturing labor costs per unit	3×11	33
	Manfacturing overheads cost per unit of thing one	19 x3	57	90
	Budgeted Manufacturing costs per unit			163
	Finished goods inventory of thing one		26000 x 163	4238000

	Thing two
	A	6*11	66
	B	4*6	24
	C	2*5	10	100
	Direct Manufacturing labor costs per unit	14*4	56
	Manfacturing overheads cost per unit of thing one	19*4	76	132
	Budgeted Manufacturing costs per unit			232
	Finshed goods inventory of thingtwo	14000*232		3248000
	Budgted finished goods inventory			7486000

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