Trago Company manufactures a single product and has a JIT policy that ending inventory must equal 5% of the next month's sales.It estimates that May's ending inventory will consist of 14,000 units.June and July sales are estimated to be 280,000 and 290,000 units,respectively.Trago assigns variable overhead at a rate of $1.80 per unit of production.Fixed overhead equals $400,000 per month.Compute the total budgeted overhead for June.
A)$920,200.
B)$904,900.
C)$930,100.
D)$922,000.
E)$878,800.

Question

Quizplus · Accepted Answer

We can calculate the required ending inventory for June as 5% of the sales, which is:
280,000 x 5% = 14,000 units
Therefore, the ending inventory for May will also be 14,000 units as given. 
Total units required for June production = June sales + required ending inventory - May ending inventory
= 280,000 + 14,000 - 14,000 = 280,000 units
Variable overhead at a rate of $1.80 per unit of production = $1.80 x 280,000 = $504,000
Total budgeted overhead for June = Fixed overhead + Variable overhead = $400,000 + $504,000 = $904,900
Hence, the best answer choice is B.

Trago Company Manufactures a Single Product and Has a JIT