Keegan Company manufactures a single product and has a JIT policy that ending inventory must equal 10% of the next month's sales. It estimates that May's ending inventory will consist of 20,000 units. June and July sales are estimated to be 280,000 and 290,000 units, respectively. Keegan assigns variable overhead at a rate of $1.80 per unit of production. Fixed overhead equals $400,000 per month. Compute the number of units to be produced and use to compute the total budgeted overhead that would appear on the factory overhead budget for month ended June 30.
A) $520,200.
B) $920,200.
C) $922,000.
D) $904,000.
E) $905,800.

Question

Quizplus · Accepted Answer

To calculate the number of units to be produced in June, we first determine June's ending inventory requirement, which is 10% of July's sales (290,000 units). Thus, June's ending inventory should be 29,000 units. Given that May's ending inventory (which becomes June's beginning inventory) is 20,000 units and June's sales are estimated at 280,000 units, we can calculate June's production needs as follows:Required for sales in June: 280,000 units+ Required ending inventory for June: 29,000 units- Beginning inventory for June (May's ending inventory): 20,000 units= Total production needed for June: 289,000 unitsThe variable overhead is assigned at $1.80 per unit of production, so the total variable overhead for June is:289,000 units * $1.80/unit = $520,200Adding the fixed overhead of $400,000:$520,200 (variable) + $400,000 (fixed) = $920,200Therefore, the total budgeted overhead for June is $920,200.

Keegan Company Manufactures a Single Product and Has a JIT