Question

Useful Art Inc. creates and manufactures objects that are characterized by both utility and artistry. One of its most popular products is the trivet (a 3-legged hot plate). The top of each trivet is a unique, handmade ceramic tile. Useful Art buys the tiles from artists and the trivet legs from a metal-working company, then assembles the trivets in-house. Towards the end of 2015, Useful Art prepares monthly budgets for 2016 using the following assumptions and data:

2015 actual sales:

Jan 300 u

Apr 350 u

Feb 325 u

May 345 u

Mar 275 u

Jun 370 u

Selling price per unit 50 $/u

Useful Art plans to launch a marketing campaign in 2016 that should increase sales (units) by 10% over 2015 sales as long as the selling price remains unchanged. Because each trivet is unique, management wants to have a substantial number of trivets on hand at all times so that customers can choose from among many options. So management plans to have 20% of next month's sales (units) on hand at the end of each month. The artists from whom Useful Art purchases the ceramic tiles do great work, but are sometimes a bit unreliable as to when they deliver the tiles. So management wants to have 30% of next month's production needs (tiles) on hand at the end of each month. The metal-working supplier is very reliable, so management wants to have just 15% of next month's production needs (legs) on hand at the end of each month Useful Art pays $35 per tile. • Useful Art pays $.45 per leg. • Useful Art has collected the following data related to cash inflows from sales: 20% of sales revenues are collected in the month of sale 70% of sales revenues are collected in the month after the sale 10% of sales revenues are collected two months after the sale

REQUIRED: Prepare the following budgets on a monthly basis for Useful Art for 2016: 1. Sales Budget (first two quarters of 2016) 2. Production Budget (first quarter of 2016) 3. Materials Purchases Budget (tiles) (first quarter of 2016) 4. Materials Purchases Budget (legs) (first quarter of 2016) 5. Cash Receipts (AKA Cash Collections) Budget (second quarter of 2016)

Answer 1

Sales budget for year 2016

Particulars	Jan	Feb	March	Q1 sales BUDGET	April	May	June	Q2 sales budget
Sales (Unit)	330	358	302	990	385	380	407	1172
Sell Price Per unit	50	50	50	50	50	50	50	50
Total Sales ($)	16500	17900	15100	49500	19250	19000	20350	58600
				990*50				1172*50

January sales of 2016 = sales unit of 2015 + 10% increase in sales units = 300 +(300*10%) = 330

FEB = 325 + (325*10%) = 358 (rounding off)

mar = 275+ (275*10%)= 302 (rounding off)

apr = 350+(350*10%)=385

may = 345 + (345*10%)=380

june = 370+(370*10%)=407

(the data of sales for 2015 given in question is not month wise this can be tricky.be careful.)

production budget

Particulars	Jan	Feb	Mar	Q1 PRODUCTION BUDGET	Apr	May	Jun
Trivets Inventory required at month /QUARTER end (20% of next month sale)	72 (20% of 358)	60 (20% of 302)	77 (20% of 385)	77	76 (20% of 380)	380
Add:
Sales of Trivets during month	330	358	302	990	385
Less:
Inventory available at month /QUARTER beginning	66	72	60	66	77
PRODUCTION REQUIRED (UNITS)	336	346	319	1001	384

In december 2015 as per company' policy 20% of sales of January 2016 would have been kept as closing inventory. 330*20% = 66 UNITS ARE OPENING INVENTORY FOR Q1 OF 2016.

Material Purchase budget Tiles for Q1 2016

	Particulars	Jan	Feb	Mar		Q1 TILE PURCHASE BUDGET		Apr
	Trivet Production Budgeted (Units)	336	346	319				384
	Tiles required For above production(1 tile per unit)	336	346	319		1001		384
	Add:
	Tiles Inventory required at the end (30% of next months production needs)	104	96	115		115
	Less:
	Tiles Inventory available at the beggining	101	104	96		101
	TILES TO BE PURCHASED	339	338	338		1015
	cost per tile	35	35	35		35
	TOTAL COST OF TILE PURCHASED	11865	11830	11830		33525
		339*35

As per company's policy 30% of january tiles production need i.e.30% of 336 would have been kept as closing inventory of tiles as on Dec2015.

MATERIAL PURCHASE BUDGET OF LEG

	JAN	FEB	MAR	Q1 LEG PURCHASE BUDGET	APR
Trivet Production Budgeted (Units)	336	346	319	1001	384
LEGS required For above production(3 LEGS per unit)	1008	1038	957	3003	1152
Add:
LEGS Inventory required at the end (15% of next months production needs OF LEGS)	158	144	173	173
Less:
LEGS Inventory available at the beggining	151	158	144	151
LEGS TO BE PURCHASED	1015	1024	986	3025
cost per Leg $	0.45	0.45	0.45	0.45
TOTAL MATERIAL PURCHASE BUDGET (LEGS)	456.75	460.80	443.7	1361.25

As per company's policy 15% of january LEGS production need i.e.15% of 1008 would have been kept as closing inventory of LEGS as on Dec2015.

ASSUME:

UNITS ARE ROUNDED OFF AS PART UNIT CANNOT BE PRODUCED.