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Mark Blake
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The Fitz Co. manufactures picnic tables and has a policy of maintaining a finished goods inventory equal to 40% of the next months planned sales. Each picnic table requires three hours of labour at a budgeted labour rate of £13 per hour. Planned sales for the months April, May and June are respectively 4,000, 5,000, and 3,000 units. What will be the budgeted direct labour cost for May?

Select one:
A. £163,800
B. £54,600
C. £226,200
D. £210,600
E. £179,400
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Stevo F
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(Original post by Mark Blake)
The Fitz Co. manufactures picnic tables and has a policy of maintaining a finished goods inventory equal to 40% of the next months planned sales. Each picnic table requires three hours of labour at a budgeted labour rate of £13 per hour. Planned sales for the months April, May and June are respectively 4,000, 5,000, and 3,000 units. What will be the budgeted direct labour cost for May?
Select one:
A. £163,800
B. £54,600
C. £226,200
D. £210,600
E. £179,400
So...
They keep finished goods inventory of 40% of next month's budgeted sales. The current month/month we need info for is May, meaning next month is June where they are budgeting 3,000 sales.

40% of 3,000 is 1,200.
Add in the 5,000 budgeted sales for May, less the 40% b/fwd stock based on May's budgeted sales, so:
1,200+5,000-(5,000*0.4)=4,200

Now that we have the goods that will need to be made in May, we know that each item uses 3 labour hours at a cost of £13 per hour.
4,200*3*13= 163,800, which is A.

If this isn't the right answer, or if you would like further explanation, let me know
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Mark Blake
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Thanks so much
So...
They keep finished goods inventory of 40% of next month's budgeted sales. The current month/month we need info for is May, meaning next month is June where they are budgeting 3,000 sales.

40% of 3,000 is 1,200.
Add in the 5,000 budgeted sales for May, less the 40% b/fwd stock based on May's budgeted sales, so:
1,200+5,000-(5,000*0.4)=4,200

Now that we have the goods that will need to be made in May, we know that each item uses 3 labour hours at a cost of £13 per hour.
4,200*3*13= 163,800, which is A.

If this isn't the right answer, or if you would like further explanation, let me know [/QUOTE]
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