Birmingham Inc

Essay

Birmingham Inc. is in the process of determining the amount of direct material, direct labor, and overhead that it will need to purchase in January 2011. Birmingham budgets 400,000 units of sales in January 2011. The company carries no inventory of finished product because the product is highly perishable.
On December 31, 2010, Birmingham had 200,000 pounds of direct material. Ending direct material inventory is expected to be 25% of beginning inventory. Each unit of product requires 4 pounds of direct material. One pound of direct material costs $0.45. Each unit of product requires ¼ hour of direct labor at a cost of $10.50 per direct labor hour. Variable overhead is applied at a rate of $0.30 per direct labor hour. Fixed overhead costs total $400,000 per month.
Required:
a. Prepare a direct material purchases budget for January 2011.
b. Calculate Birmingham's January 2011 direct labor cost.
c. Calculate Birmingham's January 2011 total overhead costs.