Trago Company manufactures a single product and has a JIT policy that ending inventory must equal 10% of the next month's sales. It estimates that May's ending inventory will consist of 30,000 units. June and July sales are estimated to be 300,000 and 310,000 units, respectively. Trago assigns variable overhead at a rate of $3.80 per unit of production. Fixed overhead equals $420,000 per month. Compute the total budgeted overhead for June.

Total overhead= $1,563,800

Explanation:

Giving the following information:

The ending inventory must equal 10% of the next month's sales.

Beginning inventory for June= 30,000 units

June sales= 300,000 units

July sales= 310,000 units,

Trago assigns variable overhead at a rate of $3.80 per unit of production. Fixed overhead equals $420,000 per month.

First, we need to calculate the number of units to be produced in June:

June production= sales for June + desired ending inventory - beginning inventory

June production= 300,000 + 31,000 - 30,000

June production= 301,000 units

Now, we can calculate the total overhead:

Total overhead= variable overhead + fixed overhead

Total overhead= 3.80*301,000 + 420,000= $1,563,800