Question

In: Accounting

Tandy, Inc. is in the business of manufacturing men’s and women’s leather computer bags. On January...

Tandy, Inc. is in the business of manufacturing men’s and women’s leather computer bags. On January 1, 2019 they started their new fiscal year. The following is their trial balance as of December 31, 2018:

Account                                                           Dr                                         Cr

               Cash                                                $   43,200

               Accounts Receivable                        $     9,000

               Raw Materials Inventory (1)              $    20,240

               Work in Process Inv. (2)                    $            0

               Finished Goods Inv. (3)                    $     8,100

               Land                                                  $ 225,000

               Equipment                                        $ 310,000

               Vehicles                                             $   84,200

               Accumulated Depreciation                                                                       $     55,100

               Long-term Investments                      $   78,500

               Accounts Payable                                                                                   $     14,700

               Wages Payable                                                                                       $       8,470

               Mortgage Payable (4)                                                                              $   214,500

               Common Stock (5)                                                                                  $     25,000

               APIC     $ 125,000

               Retained Earnings    $   335,470

                              Totals                                    $    778,240    $   778,240

  1. Includes 2,860 feet of leather at $4 per foot, 5,000 feet of nylon lining at $1.25 per foot, and 510 golden buckles at $5 per buckle
  2. No bags are currently in process at the beginning of January
  3. Includes 150 completed bags (manufacturing overhead has been applied)
  4. Monthly payments (interest and principle) are $ 2,500
  5. $0.10 par value, 300,000 share authorized and 250,000 share outstanding

For the coming year, you have been put in charge of creating the operational budget schedules and the cash budget. Below is information for the first three months of the fiscal year.

Sales Forecasts

For this coming year, you have raised your sales price to $125 per bag. Based on sales contracts you have signed with your major corporate customers, you anticipate the following sales for the first three months of 2019:

               January                250 bags

               February              225 bags

               March                  190 bags

According to the terms of the sales contracts you require each customer to pay 80% of the sales price in the month of sale and 20% in the month following. In December 2018, Tandy had $30,000 in total sales.

The production process

Each bag produced requires 4 feet of leather, 9 feet of nylon, 3 gold buckles, and 3.5 hours of direct labor. Currently you are paying your assembly workers $17 / hour. In order to meet the following month’s demand, Tandy desires to keep 45% of the next month’s sales in Finished Goods Inventory. Tandy is forecasting sales in April, 2019 of 285 bags. Additionally, they also keep 30% of next month’s production needs in raw materials inventory. Tandy anticipates production of 255 units in April, 2019. Tandy has signed contracts with their suppliers to purchase leather at $4 a foot and buckles at $5 per buckle for the following year. Their policy is to pay for 75% of raw materials at the time of purchase and the remaining 25% in the following month.

Required

  • Please prepare the sales and production budgets for January – March of 2010.

Solutions

Expert Solution

Tandy Inc.
Sales Budget
January February March Quarter
Budgeted sales units 250 225 190 665
Selling price per unit $             125 $             125 $             125 $             125
Total sales $       31,250 $       28,125 $       23,750 $       83,125
Tandy Inc.
Production Budget
January February March Quarter
Budgeted sales units 250 225 190 665
Add: Desired ending finished goods inventory 101 86 128 128
Total needed 351 311 318 793
Deduct: Beginning finished goods inventory 113 101 86 113
Budgeted production (units) 239 209 233 681

Ending inventory for March = 45% x 285 = 128.25 = 128

Note: Rounded off to the nearest whole number.


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