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

To calculate the budgeted manufacturing overhead cost for July, we need to first calculate the production needed for July, which will be:

Production needed for July = July sales forecast + August sales forecast * 0.4 (ending inventory policy) = 4,000 + 6,000 * 0.4 = 6,400 units

Adding the July 1 inventory of 1,500 units gives us a total of 7,900 units that need to be produced in July.

To calculate the manufacturing overhead cost, we multiply the monthly costs given in the table by the estimated number of units produced, and then add up the totals for all the cost categories:

Manufacturing overhead cost for July = (7,900 units * $4 per unit) + (7,900 units * $1.50 per unit) + (7,900 units * $2.50 per unit)
= $31,600 + $11,850 + $19,750
= $63,200

Therefore, the correct answer is C) $46,400, which is the manufacturing overhead cost for July.

Skybird Has Forecast Sales for the Next Three Months as Follows