In: Accounting
luebear Company produces two products: dirt bikes and four
wheelers. The dirt bike sells for $8,000, and the four wheeler
sells for $10,000. Projected sales of the two products for the
coming four quarters are given below.
Dirt Bikes Four Wheelers First Quarter 10,000 15,000 Second Quarter
12,000 17,000 Third Quarter 13,000 18,000 Fourth Quarter 8,000
14,000
The president of the company believes that the projected sales are
realistic and can be achieved by the company. In the factory, the
production supervisor has received the projected sales figures and
gathered information needed to compile production budgets. He found
that 4,200 dirt bikes and 5,300 four wheelers were in inventory on
January 1. Company policy dictates that ending inventory should
equal 15 percent of the next quarter’s sales for dirt bikes and 20
percent of next quarter’s sales for four wheelers.
Required: a. Prepare a sales budget for each quarter and for the
year in total. Show sales by product and in total for each time
period. (5 points) b. Prepare a separate production budget for each
product for each of the first three quarters of the year. (5
points
Solution:
Part 1 – Sales Budget
Sales Budget |
|||||
Quarter 1 |
Quarter 2 |
Quarter 3 |
Quarter 4 |
Year Total |
|
Dirk Bike |
|||||
Expected Unit Sales |
10,000 |
12,000 |
13,000 |
8,000 |
43,000 |
Unit Selling Price |
$8,000 |
$8,000 |
$8,000 |
$8,000 |
$8,000 |
Budgeted Sales in dollars (A) |
$80,000,000 |
$96,000,000 |
$104,000,000 |
$64,000,000 |
$344,000,000 |
Four Wheeler |
|||||
Expected Unit Sales |
15,000 |
17,000 |
18,000 |
14,000 |
64,000 |
Unit Selling Price |
$10,000 |
$10,000 |
$10,000 |
$10,000 |
$10,000 |
Budgeted Sales in dollars (B) |
$150,000,000 |
$170,000,000 |
$180,000,000 |
$140,000,000 |
$640,000,000 |
Total Budgeted Sales (A + B) |
$984,000,000 |
Part 2 – Production Budget for first 3 quarter
Production Budget in units Dirt Bike |
|||
Quarter 1 |
Quarter 2 |
Quarter 3 |
|
Next Month's Expected Unit Sales |
12000 |
13000 |
8000 |
Ratio of inventory to future sales |
15% |
15% |
15% |
Budgeted Finished Goods Ending Inventory (units) |
1800 |
1950 |
1200 |
Add: Budgeted Sales (units) |
10000 |
12000 |
13000 |
Required units of available production |
11800 |
13950 |
14200 |
Total Needs |
21800 |
25950 |
27200 |
Less: Budgeted Beginning Inventory (Ending Finished Goods Inventory of last month) |
4200 |
1800 |
1950 |
Units to be produced |
17600 |
24150 |
25250 |
Production Budget in units Four Wheeler |
|||
Quarter 1 |
Quarter 2 |
Quarter 3 |
|
Next Month's Expected Unit Sales |
17000 |
18000 |
14000 |
Ratio of inventory to future sales |
20% |
20% |
20% |
Budgeted Finished Goods Ending Inventory (units) |
3400 |
3600 |
2800 |
Add: Budgeted Sales (units) |
15000 |
17000 |
18000 |
Required units of available production |
18400 |
20600 |
20800 |
Total Needs |
33400 |
37600 |
38800 |
Less: Budgeted Beginning Inventory (Ending Finished Goods Inventory of last month) |
5300 |
3400 |
3600 |
Units to be produced |
28100 |
34200 |
35200 |
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