29 Jun Machine minutes per unit 12
uestion
The Eastern Technology Company
Background and Assumptions for Preparation of 2014 Master Budget
Sales Revenue:
The Eastern Technology Company manufactures Weather Radios for sale to retailers such as Wal-Mart, Target, etc.
The 2014 quarterly unit sales estimates and projected sales prices per unit are as follows:
Quarter1 Quarter2 Quarter3 Quarter4
Sales Units 9,300 9,500 9,700 9,900
Price per Unit $125.00 $127.00 $128.00 $130.00
Also, note that that projected sales for Quarter 1 of 2015 is 10,000 units.
Product Cost Assumptions:
The company’s product requires two raw materials, resistors and switches. Cost parameters are as follows:
Number of Components/Unit
Switches @ $4/switch 3
Resistors @ $6/resistor 2
Number of minutes required to complete finished unit:
Direct labor minutes per unit 30
Machine minutes per unit 12
Hour rates used:
Direct labor rate = $10/hour
Manufacturing overhead rates (i.e., the PDOHRs to use to apply overhead):
Labor-related = $25/hour
Machine-related = $40/hour
Eastern applies manufacturing overhead using two cost drivers: direct-labor hours and machine hours.
Ending Inventories:
The desired ending inventories for each of the two direct materials is 10% of the next quarter’s respective amount of direct materials needed for production. The desired finished goods ending inventory is 5% of the next quarter’s budgeted sales units. Beginning inventory for direct materials and finished goods are assumed to be zero as of 1/1/2014.
Non-Product Cost Assumptions (i.e., Selling, General, and Administrative Expenses):
Sales are made by brokers who charge a sales commission. The sales commission rate is $0.50 per unit sold.
Shipping costs are $3 per unit sold.
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