Managerial Accounting: P5-32 Sandoval Furniture builds high-end hand-made dining tables

Managerial Accounting: P5-32 Sandoval Furniture builds high-end hand-made dining tables

Managerial Accounting

Problem 5-32 Integrated Production Budget, Purchases Budget, and Direct Labor Budget
Sandoval Furniture builds high-end hand-made dining tables. Mackenzie Sandoval, the company’s owner, has developed the following sales forecast for 2015.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Forecasted sales (tables) 2,500 2,700 2,900 2,200

Because of the time needed to create each table, Sandoval maintains an ending Finished Goods Inventory of 20 percent of the following quarter’s budgeted sales. Sandoval has been following this inventory policy for several years. The company ended 2014 with 500 tables on hand.
The standard cost card for a table is as follows:
Standard Quantity Standard Price Total Standard Cost
American cherry wood 25 board feet $5/board foot 125
American cherry turning square (legs) 4 squares $10/square 40
Direct labor 12 DLH $18/DLH 216
Variable overhead 12 DLH $60/DLH 720
Fixed overhead 12 DLH $10/DLH 120
1,221

Requirements:
a. Prepare Sandoval's production budget for 2015. Assume that the desired ending inventory for 2015 is 600 tables.
b. Sandoval maintains inventory of American cherry wood equal to 10 percent of the following quarter's production needs. On December 31, 2014, Sandoval's physical inventory count showed 5,500 board feet of American cherry. Due to an anticipated price increase in 2016, managers want to have 10,000 board feet of American cherry wood in inventory on December 31, 2015. Prepare Sandoval's 2015 direct materials purchases budget for American cherry wood.
c. Prepare Sandoval's direct labor budget for 2015.
c. Assume that because of the skills level required to make the tables, Sandoval cannot easily hire additional workers to handle peaks in demand. Consequently, the company maintains a steady work force of 60 employees and guarantees each worker 500 hours per quarter. For any additional time required to complete the scheduled production, these same workers earn 1.5 times their normal hourly rate. Prepare Sandoval’s direct labor budget for 2015.
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