Scenario: Production, Purchase, and Labor Budgets The Simmons Company finished their sales projections for the coming year. The company produces one product. Part of next year's sales projection follows Projected Sales in Units July August September October November The budget committee has also completed the following information on inventories. Raw Materials Ending Balance, June, 50,000 lbs 125,000 145,000 139,000 155,000 180,000 Desired ending levels (monthly 10% of next month's production needs) Work-In-Progress None Finished Goods Inventory Ending Balance, June, 22,000 units Desired ending levels: 20% of next month's sales The Engineering Department has developed the following standards upon which the production budgets will be developed. Item Material usage Material price per pound Standard 3 pounds per unit $2.00 per pound Labor usage Labor rate Machine hours 0.5 hours per unit $40 per hour 2 machine hours per unit The Simmons Company uses a modified allocation method for allocating overhead costs. The rates that will be used in the coming year are as follows. Overhead Item Allocation Rate Utilities Inspection Factory supplies Depreciation Supervision $0.70 per machine hour $10 per unit produced $4 per unit produced $60,000 per month $25,000 per month