Product Expected January 1, 2016 Target December 31, 2016 — Two products are manufactured the Fraser Corporation Widgets and Thingamajigs July 2015

Two products are manufactured by the Fraser Corporation: Widgets and Thingamajigs. In July 2015, the controller of Fraser, upon instructions from senior management, had the budgeting department gather the following data in order to prepare budgets for 2016:

2016 Projected Sales

Product Units Price

Widget……………...60,000………..$198

Thingamajig………...40,000………..$300

2016 Inventories in Units

Product Expected January 1, 2016 Target December 31, 2016

Widget……………………….22,000………………………………..27,000

Thingamajig………………….10,000………………………………..11,000

The following direct materials are used to produce one unit of Widget and Thingamajig:

Amount Used per Unit

Direct Material Unit Widget Thingamajig

A………………….Kilograms…………4…………………5

B………………….Kilograms…………2…………………3

C………………………..Each…………0…………………1

Projected data for 2016 with respect to direct materials are as follows:

Anticipated Expected Target

Purchase Price Inventories, Inventories,

Direct Material January 1, 2016 December 31, 2016

A………………………….$14……………..32,000 kilograms……..36,000 kilograms

B…………………………..$ 7……………..29,000 kilograms……..32,000 kilograms

C…………………………..$ 5……………………6,000 units……………7,000 units

Projected direct manufacturing labour requirements and rates for 2016 are as follows:

Hours per Rate per

Product Unit Hour

Widget………..2…………….$15

Thingamajig…..3……………...19

Manufacturing overhead is allocated at the rate of $24 per direct manufacturing labour-hour.

Required

Based on the preceding projections and budget requirements for Widgets and Thingamajigs, prepare the following budgets for 2016:

1. Revenue budget (in dollars).

2. Production budget (in units).

3. Direct materials purchases budget (in quantities).

4. Direct materials purchases budget (in dollars).

5. Direct manufacturing labour budget (in dollars).

6. Budgeted finished goods inventory at December 31, 2016 (in dollars).

SOLUTION

This is a routine budgeting problem. The key to its solution is to compute the correct quantities of finished goods and direct materials. Use the following general formula:

1. Fraser Corporation

Revenue Budget

For 2016

Units Price Total

Widget 60,000 $198 $ 11,880,000

Thingamajig 40,000 300 12,000,000

Projected sales $23,880,000

2. Fraser Corporation

Production Budget (in units)

For 2016

Widget Thingamajig

Budgeted sales in units 60,000 40,000

Add target finished goods inventories,

December 31, 2016 27,000 11,000

Total requirements 87,000 51,000

Deduct finished goods inventories,

January 1, 2016 22,000 10,000

Units to be produced 65,000 41,000