Prepare a production budget and estimate the materials costs

Reference no: EM13903224

Production budget. Arizona, Inc., produces sun visors. The controller is preparing a budget for Year 2 and asks for your assistance. The following costs and other data apply to pro- duction for Year 1:

Direct Materials per unit Direct Labor per unit Overhead per unit	$1.20 1/4-hour at $10.00 per Hour
Indirect Labor	$ .10
Indirect Materials	.08
Power	.07
Equipment Costs	.36
Building Occupancy	.19
Total Overhead per Unit	$ .80

You learn that equipment costs and building occupancy are fixed and are computed assuming a normal production of 10,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 12,000 units per year.

Labor costs per hour are not expected to change during the year. However, the materials supplier has informed Arizona that it will impose a 10 percent price increase at the start of Year 2. No other costs are expected to change.

During Year 1, Arizona expects to sell 10,000 units. Finished goods inventory is targeted to increase from 2,000 units to 4,000 units to prepare for an expected sales increase in Year 3. Production will occur evenly throughout the year. There are no work-in-process inventory or materials inventories.

Prepare a production budget and estimate the materials, labor, and overhead costs for Year 2.

Reference no: EM13903224

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