Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 22

Prepare a Production Budget
Chander, Inc., manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production:

You learn that equipment costs and building occupancy are fixed and are based on a normal production of 200,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 250,000 units per year.
Labor costs per hour are not expected to change during the year. However, the cotton supplier has informed Chander that it will impose a 20 percent price increase at the start of the coming budget period. No other costs are expected to change.
During the coming budget period, Chander expects to sell 180,000 bags. Finished goods inventory is targeted to increase from the current balance of 40,000 units to 70,000 units to prepare for an expected sales increase the year after next. Production will occur evenly throughout the year. Inventory levels for cotton and canvas are expected to remain unchanged throughout the year. There is no work-in-process inventory.
Required
Prepare a production budget and estimate the materials, labor, and overhead costs for the coming year.