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?
A) $32,000
B) $41,000
C) $46,400
D) $17,000

Question

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?
A) $32,000 
B) $41,000 
C) $46,400 
D) $17,000

Quizplus · Accepted Answer

Step 1: Calculate the total units of 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
- July: 40% x 6,000 units (August's sales needs) = 2,400 units
- August: 40% x 7,500 units (September's sales needs) = 3,000 units
- September: no ending inventory is required, as it is the last month

Step 3: Calculate the required production for each month
- July: 4,000 units + 2,400 units - 1,500 units (beginning inventory) = 4,900 units
- August: 6,000 units + 3,000 units - 2,400 units = 6,600 units
- September: 7,500 units + 0 units - 3,000 units = 4,500 units

Step 4: Calculate the budgeted manufacturing overhead cost for each month
- July: $8 per unit x 4,900 units = $39,200
- August: $8 per unit x 6,600 units = $52,800
- September: $8 per unit x 4,500 units = $36,000

Therefore, the budgeted manufacturing overhead cost for July is $46,400 (choice C).

Skybird Has Forecast Sales for the Next Three Months as Follows