D 1 2 FO budget D OAKBROOK FARM SUPPLY-PARTH Sales Budget 3 In the first part of Oakbrook, we constructed a sales budget, a production budget and a direct materials budget for quarters 1 and 2. In thislab, we will construct a direct labor Prod Budget 5 budget and a factory overhead budget. DM budget Dl budget 7 Review: sales for Q1-35,000 bags of Snare, sales budgeted at 50.600. The desired inventory levels of Snare are 1-lan 1-Apr 1.Jul 9 Desired Inventories 8,000 12,000 18,000 0 10 1 11 PRODUCTION BUDGET (Review) 91 92 2 12 Sales of Snare Budgeted 13 13 Desired Ending Inventory 14 Subtotal 15 15 Beginning inventory 16 16 units of Share to Produce 0 O 17 17 18 18 Once you have your production budget, you should be able to prepare a direct materials budget, 19 19 a direct labor budget and a factory overhead budget. We created the direct materials budget last week 20 20 21 21 DIRECTLABOR BUDGET 22 22 Each bag of Snare requires 15 minutes of direct labor time, and the workers earn $24 per hour 23 23 Think of 15 minutes as 1/4 hour. 24 24 91 Q2 Two-Quarter Total 25 25 Units of Share to Produce 26 26 Time Required Per Bag (Hours) 27 27 Total Direct Labor Hours Required Total DH 23 28 Hourly Labor Rate 29 29 Total Direct Labor Cost 50 $0 $0 30 30 31 31 FACTORY OVERHEAD BUDGET 32 32 The factory overhead budget consists of two categories of factory overhead variable factory overhead and fixed factory overhead 33 In variable factory overhead consists of indirect materials of 56,500, Indirect labor of $3,500, factory utilities of 14 34 52.400, and maintenance costs of $1,200. in 2. Indirect materials $12,000, indirect labor $15.000, factory utilities $4,000 and maintenance $2.500 35 35 35 36 36 Faxed factory overhead consists of supervisory salaries of $25,000 per quarter, depreciation of $8,000 per quarter, factory property taxes 37 37 and insurance of $10,000 per quarter, and maintenance costs of $5,000 per quarter. 38 38 Note: Gakbrookuses Direct Labor Hours as the denominator in the Predetermined Overhead Rate calculation POR.Budgeted Fo/Budgeted DLH 39 39 91 92 Two-Quarter Total or 40 40 VARIABLE OVERHEAD COSTS POR-Budgeted FO/Budgeted DL Cost 41 41 Indirect Materials 42 Indirect labor 43 Factory Utilities 44 44 Maintenance Costs 45 45 Total Variable Overhead SO $0 $0 46 46 47 FIXED OVERHEAD COSTS 48 Supervisory Salaries 49 49 Depreciation of Plant and Equipment 50 So Factory Property Taxes and insurance 51 51 Maintenance Costs 52 S2 Total Reed Overhead 50 $0 SO 53 53 Total Factory Overhead Budgeted so 54 54 55 55 Direct Labor Hours Budgeted Total DUH 56 57 57 Predetermined Overhead Rate 58 DIV/0! PORTotal Budgeted fo/Total Budgeted DLH SR 59 59 Questions/Thoughts 60 60 1. Note that the Factory Overhead Budget consists of both feed costs and variable costs Yet, the the overhead 61 61 is applied at about 56.00 per direct labor hour making the applied overhead a variable cost 62 62 2. Look at the feed overhead. Suppose acompany wanted to produce some extra units would those extra units 62 make the feed overhead costs go up? 64 3. Janet, the factory supervisor, remarted that the factory wasn't producing very many units in Q3, due to declining sales 65 Right now, if we produce extra units, these extra units produced don't act supervisory costs or depreciation 56 66 or property taxes or insurance or maintenance they are all feed costs" 67 "And if we produce fewer units, these find overhead costs don't decline" It seems to me that the only relevant costs in producing units are the DM, and there werhead costs" "Maybe we should consider the fedewerhead costs to be PERIOD COSTS!" 70 70 What do you think of this idea? In the text, this is called "VARIABLE COSTING 21 72 67 68 69 69 73