7. Prepare a Direct Material and Direct Labor Budgets Trevor, Inc. manufactures model airplane kits and projects production at 500, 570, 300, and 450 kits for the next four quarters. Direct materials are $10 per kit. Indirect materials are considered insignificant and are not included in the budgeting process. Beginning Raw Materials Inventory is $200, and the company desires to end each quarter with 30% of the materials needed for the next quarter's production. Trevor desires a balance of $200 in Raw Materials Inventory at the end of the fourth quarter. Each kit requires 0.75 hours of direct labor at an average cost of $25 per hour. Manufacturing overhead is allocated using direct labor hours as the allocation base. Variable overhead is $0.75 per kit, and fixed overhead is $160 per quarter. Prepare Trevor's direct materials budget, direct labor budget, and manufacturing overhead budget for the year. Round the direct labor hours needed for production, budgeted overhead costs, and predetermined overhead allocation rate to two decimal places. Round other amounts to the nearest whole number. ANS: TREVOR, INC. Direct Materials Budget For the Year Ended December 31 Budgeted kits to be produced Direct materials needed for production Plus: Desired DM in ending inventory(a) Total direct materials needed Less: DM in beginning inventory Budgeted purchases of direct materials First Quarter Second Quarter Third Quarter Quarter Fourth Total TREVOR, INC. Direct Labor Budget For the Year Ended December 31 Budgeted kits to be produced Direct labor hours needed for production Budgeted direct labor cost First Second Third Fourth Quarter Quarter Quarter Quarter Total 8. Goldman, Inc. is a manufacturer of lead crystal glasses. The standard direct materials quantity is 0.7 pound per glass at a cost of $0.30 per pound. The actual result for one month's production of 6,900 glasses was 1.3 pounds per glass, at a cost of $0.40 per pound. Calculate a) the direct materials cost variance b) the direct materials efficiency variance and c) Summary variance. ANS: (a) (b) (c)