McGary, Inc. expects the following sales, by month, for the next six months:
January .................................................................... $ 600,000
February .................................................................. 400,000
March ...................................................................... 500,000
April ........................................................................ 550,000
May ......................................................................... 700,000
June ......................................................................... 800,000
McGary currently has 100,000 units in ending inventory and it wants to decrease its ending inventory by 10 percent each month until it reaches a desired ending inventory level of 50,000. Each unit produced by McGary uses 2 liters of direct materials, 3 hours of direct labor, and one- half hour of machine time. McGary expects to pay $ 4 per liter for materials and $ 12 per hour for labor. Its estimated unit-related overhead is $ 10 per machine hour. Other overhead (batch- related and facility- sustaining) has been calculated at $ 20 per unit.
Required:
A. Prepare the production budget, by month, for the first three months.
B. Prepare the direct labor and manufacturing overhead budget for the first three months.