9-27 Sales and Production Budgets The Scarborough Corporation manufactures and sells two products: Thingone and Thingtwo. In July 20x7, Scarborough's budget department gathered the following data in order to project sales and budget requirements for 20x8. 20X8 Projected Sales: Product Units Thingone 60,000 Thingtwo 40,000 Price $ 70 $100 20X8 Inventories-in units: Expected Desired Product January 1, 20X8 Thingone 20,000 Thingtwo 8,000 December 31, 20X8 25,000 9,000 In order to produce one unit of Thingone and Thingtwo, the following raw materials are used: Amounts used per unit Raw Materials Units Thingone Thingtwo A lbs. 4 5 B lbs. 2 3 each 1 Projected data for 20X8 with respect to raw materials are as follows: Expected Desired Anticipated Inventories Inventories Raw Purchase January 1, December 31, Materials 20X8 20X8 A $8 32,000 lbs. 36,000 lbs. B $5 29,000 lbs. 32,000 lbs. $3 6,000 each 7,000 each Price Direct Materials #101 #211 #242 Units of Direct Materials Finished Component 6 4 2 Cost per Unit $2.40 3.60 Inventory Level 6/30/20X6 35,000 units 30,000 units 14,000 units 1.20 Direct Labor Each component must pass through three different processes to be completed. Data regarding the direct labor is presented below. Process Forming Assembly Finishing Direct Labor Hours per Finished Component 0.80 2.00 0.25 Cost per Direct Labor Hour $8.00 5.50 6.00 Factory Overhead The division produced 27,000 components during this six-month period through June 30, 20X6. The actual variable overhead costs incurred during this six-month period are shown below. The division controller believes the variable overhead costs will be incurred at the same rate during the last six months of 20X6. Supplies Electricity Indirect labor Other Total variable overhead $ 59,400 27,000 54,000 8,100 $148,500 The fixed overhead costs incurred during the first six months of 20X6 amounted to $93,500. Fixed overhead costs are budgeted for the full year as follows: Supervision Taxes Depreciation Other Total fixed overhead $ 60,000 7,200 86,400 32,400 $186,000 Finished Goods Inventory The desired monthly ending inventory in units of completed components is 80% of the next month's estimated sales. There are 5,000 finished units in the inventory on June 30, 20X6. Required: a. Prepare a production budget in units for the Wyoming Division for the third quarter ending September 30, 20X6. 257 Cost ACCOUNTING FOR MANAGERIAL PLANNING, Decision MAKING, AND CONTROL b. Without prejudice to your answer in requirement (a), assume the Wyoming Division plans to produce 18,000 units during the third quarter ending September 30, 20X6, and 60,000 units for the year ending December 31, 20X6. 1. Prepare a direct materials purchase budget in units and dollars for third quarter ending September 30, 20X6. 2. Prepare a direct labor budget in hours and dollars for the third quarter ending September 30, 20X6. 3. Prepare a factory overhead budget for the six-month period ending December 31, 20X6. c. Assume Wyoming Division actually produced 38,000 components during the six- month period of July 1-December 31, 20X6, and incurred variable overhead of $203,300 and fixed overhead of $95,000. Evaluate Wyoming Division's performance for the last six months of 20X6 with respect to its control of factory overhead costs. Show and explain briefly any supporting calculations used in your evaluation. (IMA adapted)