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Atkinson's Reliable Tools makes two products that use similar raw materials: #587Q and #253X. Estimated production needs for a unit of each product follows.#587Q #253XSteel (in pounds) 3 5Wood (in board feet) 0.5 0.2Direct Labor (in hours) 2 3Machine Hours 0.5 0.7
Estimated sales in units by product for 2011 are 80,000 of #587Q and 30,000 of #253X. Additionally, estimated beginning and desired ending inventory quantities for 2011 are as follows:
Beginning Ending#587Q (units) 800 640#253X (units) 1200 900Steel (in pounds) 2000 1400Wood (in board feet) 800 600
Overhead is applied to production at the rate of $15 per machine hour and the direct labor wage rate is 10.50 per hour. Prepare the production, purchases, direct labor, and overhead budgets for 2011.
Opportunity Costs Are Relevant Costs Opportunity cost introduces an additional concept that is not available like part of normal cost analysis in the accounting record system.
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