Selected information from the direct materials budget of Perry Inc. is provided here:

		First		Second			Third			Fourth
Required production in units of finished goods		15,000		12,500			7,500			15,000
Required production in units of finished goods		4		4			4			4
Units of raw materials needed to meet production		60,000		50,000			30,000			60,000
Desired units of ending raw materials inventory										24,000
Total units of raw materials needed
Units of beginning raw materials inventory		16,000
Units of raw materials to be purchased
Unit cost of raw materials	$	5	$	5		$	5		$	5
Cost of raw materials to be purchased

Perry, Inc. desires to maintain the ending inventory of raw materials at 40 percent of the next quarter's raw material needs. What is the cost of raw materials to be purchased in the first quarter?

• $300,000

• $320,000

• $380,000

• $400,000

Companies prepare direct labor budgets to ________.

• avoid labor shortages

• determine the direct labor-hours per unit

• ensure timely supply of raw materials

• reduce inventories

Knowledge Check 02

Pro Clean Company, a manufacturer of hand sanitizers, intends to produce 40,000 units in the third quarter and 35,000 units in the fourth quarter. Each unit requires 0.50 direct labor-hours (DLHs) and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter?

• $355,000

• $360,000

• $300,000

• $315,000

William Corporation has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter. Based on its direct labor budget for the current year, the company estimated it will need 39,000 direct labor-hours during the fourth quarter to produce 13,000 units of finished goods. Each unit requires 3 direct labor-hours (DLHs) and the cost of direct labor per hour is $12 per hour. What is the total direct labor cost for the fourth quarter?

• $432,000

• $468,000

• $480,000

• $540,000

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense.

Knowledge Check 01

What is the budgeted variable manufacturing overhead for the year?

• $200,000

• $260,000

• $280,000

• $400,000

Knowledge Check 02

What is the predetermined overhead rate for the year?

• $2 per machine hour

• $4 per machine hour

• $5 per machine hour

• $6 per machine hour

Knowledge Check 01 The purpose of preparing a direct materials budget is to allocate the cost of raw materials to production departments estimate the manufacturing overhead estimate the quantity of raw materials to be purchased estimate the unit cost of direct materials to be purchased Knowledge Check 02 In a direct materials budget, the desired ending raw materials inventory for the year is equal to the beginning balance of accounts payable desired ending raw materials inventory for the last period total merchandise purchased during the year value of raw material used during the year