A company has the following annual budget data:Beginning finished goods inventory 52,000 unitsSales 82,000 unitsEnding finished goods inventory 42,000 unitsDirect materials $ 12 per unitDirect labor $ 24 per unitVariable factory overhead $ 5 per unitSelling costs $ 2 per unitFixed factory overhead $ 92,000 What are total budgeted production costs for the year? (CIA adapted)Multiple Choice$3,116,000$2,952,000$3,208,000$3,044,000
Question
A company has the following annual budget data:Beginning finished goods inventory 52,000 unitsSales 82,000 unitsEnding finished goods inventory 42,000 unitsDirect materials 24 per unitVariable factory overhead 2 per unitFixed factory overhead 3,116,0003,208,000$3,044,000
Solution
To calculate the total budgeted production costs for the year, we first need to determine the number of units that need to be produced. This can be calculated by adding the sales units to the ending finished goods inventory and then subtracting the beginning finished goods inventory.
So, the number of units to be produced = Sales + Ending inventory - Beginning inventory = 82,000 units + 42,000 units - 52,000 units = 72,000 units
Next, we calculate the variable cost per unit, which is the sum of the costs of direct materials, direct labor, and variable factory overhead.
Variable cost per unit = Direct materials + Direct labor + Variable factory overhead = 24 + 41
The total variable cost is then calculated by multiplying the variable cost per unit by the number of units to be produced.
Total variable cost = Variable cost per unit * Number of units to be produced = 2,952,000
Finally, we add the fixed factory overhead to the total variable cost to get the total budgeted production costs for the year.
Total budgeted production costs = Total variable cost + Fixed factory overhead = 92,000 = $3,044,000
So, the total budgeted production costs for the year is $3,044,000.
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