31. Budgeting for Sales, Production, Direct Materials, Direct Labor, and Manufacturing Overhead; Ethical Issues. Sanders Swimwear, Inc., produces swimsuits. The following information is to be used for the operating budget this coming year.

Average sales price for each swimsuit is estimated to be $50. Unit sales for this coming year ending December 31 are expected to be as follows:

First quarter	3,000
Second quarter	5,000
Third quarter	20,000
Fourth quarter	6,000

Finished goods inventory is maintained at a level equal to 10 percent of the next quarters sales. Finished goods inventory at the end of the fourth quarter budget period is estimated to be 400 units.

Each unit of product requires 3 yards of direct materials, at a cost of $4 per yard. Management prefers to maintain ending raw materials inventory equal to 20 percent of next quarters materials needed in production. Raw materials inventory at the end of the fourth quarter budget period is estimated to be 9,500 yards.

Each unit of product requires 0.5 direct labor hours at a cost of $12 per hour.

Variable manufacturing overhead costs are

Indirect materials	$0.60 per unit
Indirect labor	$3.50 per unit
Other	$2.80 per unit

Fixed manufacturing overhead costs per quarter are

Salaries	$30,000
Other	$ 5,000
Depreciation	$ 9,330

REQ

1-Prepare a manufacturing overhead budget

2- As the production manager, what concerns, if any, do you have about production requirements for each of the four quarters?

3- Assume the sales budget was developed based on input provided by the companys vice president of sales. The vice president is paid a base salary plus a bonus if actual sales exceed budgeted sales. How might this influence the vice presidents estimate of quarterly sales? What effect might this have on the company?