MCO Leather manufactures leather purses . Each purse requires 2 pounds of direct materials at a cost of $ 5 per pound and 0.7 direct labor hours at a rate of 12 per hour Variable manufacturing overhead is charged at a rate of $ 2 per direct labor hour . Fixed manufacturing overhead is 13,000 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 4,280 pounds of direct materials in inventory . The company's production budget reports the following . Production Budget Units to be produced September 4,889 October 6, 500 November 6,300 ) 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 .

MCO Leather Manufacturing Company

1. Direct Materials Budget

                                    September  October

Materials requirement   9,778       13,000

Ending inventory           3,900         3,780

Materials available       13,678        16,780      

Beginning inventory     4,280         3,900

Purchases  (pounds)    9,398        12,880

Cost of purchases  $46,990     $64,400

2. Direct labor budgets for September and October:

                                    September  October

Units to be produced   4,889         6,500

Direct labor hours        3,422         4,550

Direct labor costs     $41,064    $54,600

3. Factory Overhead Budgets for September and October:

                                    September  October

Units to be produced   4,889         6,500

Variable overhead     $6,845        $9,100

Fixed overhead          13,000        13,000

Total overhead         $19,845     $22,100

Explanation:

a) Data and Calculations:

Direct materials required per purse = 2 pounds

Cost of a pound of direct materials = $5

Direct materials cost per unit = $10 ($5 * 2)

Direct labor cost per unit = $8.40 (0.7 * $12)

Variable overhead = $2 per direct labor hour

Variable overhead per unit = $1.40 ($2 * 0.7)

Fixed manufacturing overhead per month = $13,000

Desired ending inventory of direct materials = 30% required the next month

August ending direct materials inventory = 4,280 pounds

Production Budget   September  October  November

Units to be produced   4,889         6,500        6,300

Materials requirement 9,778        13,000       12,600

1. Direct Materials Budget

                                  September  October  November

Materials requirement   9,778       13,000       12,600

Ending inventory           3,900         3,780

Materials available       13,678        16,780      

Beginning inventory     4,280         3,900         3,780

Purchases  (pounds)    9,398        12,880

Cost of purchases  $46,990     $64,400

2. Direct labor budgets for September and October:

                                  September  October  November

Units to be produced   4,889         6,500        6,300

Direct labor hours        3,422         4,550         4,410

Direct labor costs     $41,064    $54,600   $52,920

3. Factory Overhead Budgets for September and October:

                                 September  October  November

Units to be produced   4,889         6,500        6,300

Variable overhead     $6,845        $9,100     $8,820

Fixed overhead          13,000        13,000      13,000

Total overhead         $19,845     $22,100    $21,820

agriculture and oil. natural resources, industry.