MCO Leather Goods manufactures leather purses. Each purse requires 2 pounds of direct materials at a cost of $3 per pound and 0.7 direct labor hours at a rate of $14 per hour. Variable manufacturing overhead is charged at a rate of $2 per direct labor hour. Fixed manufacturing overhead is $17,000 per month. The company’s policy is to end each month with direct materials inventory equal to 30% of the next month’s materials requirement. At the end of August the company had 2,680 pounds of direct materials in inventory. The company’s production budget reports the following. Production Budget September October November Units to be produced 4,700 6,200 6,400 (1) Prepare direct materials budgets for September and October. (2) Prepare direct labor budgets for September and October. (3) Prepare factory overhead budgets for September and October.

                                                       September              October

1)Direct Material budget                 $31,320                  $37,560

2)Direct Labor Budget                     $46,060                $60,760

3)Factory Overhead cost                $23,580                 $25,680

Explanation:

Material :

production (4,700*2) (6200*2)         9,400                  12,400            

+Closing( production *30%)              3,720                    3,840

-Opening                                           2,680                   3,720

=Purchases                                        10,440                  12,520

* $3 cost per pound

cost of material                                $31,320                  $37,560

Labor :

Production                                       4,700                       6,200

* hours per unit                                  0.7                           0.7

Total hours                                     3,290                       4,340

* Cost per hour                                 $14                        $14

Total Cost                                       $46,060                $60,760

Factory overhead cost:

Variable cost

Hours worked                                 3,290                       4,340

* rate                                                  $2                            $2

Variable cost                                 $6,580                      $8,680

Fixed costs                                   $17,000                       $17,000

Total Factory Overhead             $23,580                      $25,680

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