Part One: Gordon, Inc. makes toys and projects production to be 6100, 5900, 6000, and 5500 for the next four quarters. Direct materials are $8 per kit. Beginning Raw Material Inventory is $20,000 and the company desires to end each quarter with 25% of the material needed for the next two quarter's production. Direct Materials needed for production in the First Quarter of the following year is $45,000. Gordon desires a balance of $25,000 in Raw Materials Inventory at the end of the fourth quarter. Each kit requires 1.3 hours of direct labor at an average cost of $30 per hour. Each kit requires 1.25 machine hours. Manufacturing overhead is allocated using machine hours as the allocation base. Variable overhead is $50 per kit and fixed overhead is $30,000 in the first two quarters and $32,000 in the third and fourth quarter.

	Prepare Gordon'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.
Solution:
	GORDON, INC.
	Direct Materials Budget
	For the Year Ended December 31
					First	Second	Third	Fourth
					Quarter	Quarter	Quarter	Quarter	Total
	Budgeted kits to be produced
	Direct Materials Cost per Kit
	Direct Materials Cost Needed for Production
	Desired Ending Inventory
	Total Direct Materials Needed
	Less DM in Beginning Inventory
	Budgeted Purchases of Direct Materials