Skybird has forecast sales for the next three months as follows: July 4,000 units,August 6,000 units,September 7,500 units.Skybird's policy is to have an ending inventory of 40% of the next month's sales needs on hand.July 1 inventory is projected to be 1,500 units.Monthly costs are budgeted as follows: What is budgeted manufacturing overhead cost for July?

Question

Quizplus · Accepted Answer

Step 1: Calculate the total sales needs for each month
- July: 4,000 units
- August: 6,000 units
- September: 7,500 units

Step 2: Calculate the ending inventory for each month based on the policy
- August ending inventory: 40% x 6,000 units = 2,400 units
- September ending inventory: 40% x 7,500 units = 3,000 units

Step 3: Calculate the total units needed for each month
- July: 4,000 units + 2,400 units = 6,400 units
- August: 6,000 units + 3,000 units = 9,000 units
- September: 7,500 units = 7,500 units

Step 4: Calculate the total manufacturing units needed for the quarter
- Quarter total = 6,400 units + 9,000 units + 7,500 units = 22,900 units

Step 5: Use the predetermined overhead rate to calculate manufacturing overhead cost
- Predetermined overhead rate = $2.00 per unit
- Manufacturing overhead cost for July = 6,400 units x $2.00 per unit = $12,800
- Total overhead cost for the quarter = $12,800 x 3 = $38,400
- Add the $7,000 fixed overhead cost for the quarter = $38,400 + $7,000 = $45,400
- Divide by 3 for monthly costs = $45,400 / 3 = $15,133.33
- Add the $1,200 variable selling and administrative cost for the quarter = $15,133.33 + $1,200 = $16,333.33

Step 6: Allocate the total costs to each month based on the units needed
- July manufacturing overhead cost = $12,800 x (6,400 units / 22,900 units) = $3,562.01
- July total cost = $3,562.01 + $1,200 variable selling and administrative cost = $4,762.01

Therefore, the budgeted manufacturing overhead cost for July is $3,562.01, which is option C.

Skybird Has Forecast Sales for the Next Three Months as Follows