Question

Waterway Enterprises is a boutique guitar manufacturer. The company produces both acoustic and electric guitars for rising and established professional musicians. Vanessa Aaron, the company’s sales manager, prepared the following sales forecast for 2018. The forecasted sales prices include a 5% increase in the acoustic guitar price and a 10% increase in the electric guitar price, to cover anticipated increases in raw materials prices.

Sales Price 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Acoustic guitar sales $1,200 210 260 300 305

Electric guitar sales $2,390 420 380 310 340

Prepare Waterway’s sales budget for 2018.

Sales Budget

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Annual

Acoustic:

$

$

$

$

$

$

$

$

$

$

Electric:

$

$

$

$

$

$

$

$

$

$

Total revenue

$

$

$

$

$

LINK TO TEXT

LINK TO VIDEO

On December 31, 2017, Waterway had 30 acoustic guitars in stock—fewer than the desired inventory level of 84 guitars, based on the following quarter’s sales. The company has budgeted for sales of 240 acoustic guitars in the first quarter of 2019. Prepare the 2018 production budget for acoustic guitars.

Production Budget

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Annual

LINK TO TEXT

LINK TO VIDEO

Each acoustic guitar requires a maple neck blank, which Waterway purchases for $40. On December 31, 2017, Waterway had 390 neck blanks in inventory. Spoilage during the production process results in a standard quantity of 1.5 necks per acoustic guitar. Because of recent delivery problems, Waterway wants to maintain an ending inventory equal to 50% of the following quarter’s production needs. Since the supplier has assured Waterway that the delivery issues will be resolved by the end of December, Waterway wants only 360 neck blanks in inventory on December 31, 2018. Prepare the purchases budget for neck blanks for 2018. (Enter "per guitar" value to 1 decimal place, e.g. 3.1. Round all other answers to 0 decimal places, e.g. 153.)

Purchases Budget

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Annual

$

$

$

$

$

$

$

$

$

$

Answer 1

Requirement
	Sales Budget
			1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Annual
	Acoustic
	Number of guitars		210	260	300	305	1075
	Sales price		1200	1200	1200	1200	1200
	Sales Revenue		252000	312000	360000	366000	1290000
	Electric
	Number of guitars		420	380	310	340	1450
	Sales price		2390	2390	2390	2390	2390
	Sales Revenue		1003800	908200	740900	812600	3465500
	Total Revenue		1255800	1220200	1100900	1178600	4755500
Requirement
	Production Budget
			1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Annual
	Acoustic
	Ending Inventory of Guitars		104	120	122	96	96
	Sales for the period		210	260	300	305	1075
	Inventory of Guitars needed		314	380	422	401	1171
	Beginning Inventory of Guitars		30	104	120	122	30
	Guitar needed to be produced		284	276	302	279	1141
	Purchase Budget
			1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Annual
	Acoustic
	Guitar needs to be produced		284	276	302	279	1141
	Standard quanity of Maple neck Blank required		1.5	1.5	1.5	1.5	1.5
	Total		426	414	453	418.5	1711.5
Requirement
			1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Annual
	Ending Inventory of Neck Blank		207	227	209	360	360
	Neck Blank in standard quantity		426	414	453	419	1712
	Total Neck Blank required		633	641	662	779	2072
	Beginning Inventory of Neck Blank		390	207	227	209	390
	Total Neck Blank to be purchased		243	434	436	569	1682
	Purchase price of per Neck Blank		40	40	40	40	40
	Total Purchase Value		9720	17340	17430	22770	67260