University:
Baltimore City Community College
Course:
ACT 221 | Principles of Financial Accounting I
Academic year:

2024
Views:

200

Pages:

2
Author:

Danny A.

Cash Disbursements for Purchases The cash disbursements for purchases budget is developed on completion of the raw material purchases budget. Lewis makes all purchases on account, and past history indicates that 60 percent of any month's purchases are paid in the month of purchase and the remaining 40 percent are paid in the following month. Lewis Corporation's cash disbursements for purchases budget is illustrated in Exhibit 16-7. Direct Labor The direct labor budget, also based on the production schedule, is important in assessing the availability of workers or the necessity of sched uling overtime. Budgeted direct labor hours are determined by multiplying the required direct labor hours per product by the monthly units to be manufactured. Lewis Corporation's product requires one direct labor hour per unit at an hourly cost of $6 per hour. The company's direct labor budget is illustrated in Exhibit. Factory Overhead The factory overhead budget summarizes all additional production costs other than raw materials and direct labor. As discussed in Chapter 15, these other costs include depreciation, factory supervision, factory supplies, maintenance, and utilities and must be separated into their fixed and variable components for budgeting purposes. A predetermined application rate is developed for both the variable and fixed components of factory overhead; the overhead application method discussed in Chapter 14 is used to apply overhead to products. Lewis Corporation's variable overhead rate is $1.40 per direct labor hour, and the budgeted fixed factory overhead cost for the first quarter of 1992 is $28,950, or $9,650 per month. The factory overhead budget also calculates budgeted cash disbursements. Depreciation expense is a noncash charge and must be deducted from total overhead to determine the expected cash payment for overhead each month. Lewis Corporation's budgeted depreciation charge is $3,500 per month. The company pays all overhead costs in the month they are incurred. Exhibit illustrates Lewis Corporation's factory overhead budget.