Question

Diane Buswell is preparing the 2019 budget for one of Current Designs' kayaks. Extensive meetings with members of the sales department and executive team have resulted in the following unit sales projections for 2019.

Quarter 1	1,000 kayaks
Quarter 2	1,500 kayaks
Quarter 3	750 kayaks
Quarter 4	750 kayaks

Current Designs' policy is to have finished goods ending inventory in a quarter equal to 20% of the next quarter's anticipated sales. Preliminary sales projections for 2020 are 1,100 units for the first quarter and 1,500 units for the second quarter. Ending inventory of finished goods at December 31, 2018, will be 200 kayaks.

Production of each kayak requires 54 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). Company policy is that the ending inventory of polyethylene powder should be 25% of the amount needed for production in the next quarter. Assume that the ending inventory of polyethylene powder on December 31, 2018, is 19,400 pounds. The finishing kits can be assembled as they are needed. As a result, Current Designs does not maintain a significant inventory of the finishing kits.

The polyethylene powder used in these kayaks costs $1.50 per pound, and the finishing kits cost $170 each. Production of a single kayak requires 2 hours of time by more experienced, type I employees and 3 hours of finishing time by type II employees. The type I employees are paid $15 per hour, and the type II employees are paid $12 per hour.

Selling and administrative expenses for this line are expected to be $45 per unit sold plus $7,500 per quarter. Manufacturing overhead is assigned at 150% of labor costs.

Instructions:

Determine a sales price for your kayaks that you feel is reasonable and a short explanation on this decision, then using the sales projections and other budgets, prepare the following:

a. Sales Budget

b. Budgeted Income Statement

Answer 1

Production Budget

For the year ended 2019

Particulars	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total
Expected Unit Sales	1000	1500	750	750	4000
Add: desired ending finished goods units	300	150	150	220	820
Total required units	1300	1650	900	970	4820
Less: beginning finished goods units	-200	-300	-150	-150	-800
Required production units	1100	1350	750	820	4020

DIrect Materials Budget

For the year ended 2019

Particulars	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total
Units to be produced	1100	1350	750	820	4020
Pounds of Polyethylene powder per unit	54	54	54	54	54
Total Pounds needed for production	59400	72900	40500	44280	217080
Add: desired ending inventory of powder	18225	10125	11070	15930	55350
Total pounds of powder required	77625	83025	51570	60210	272430
Less: beginning inventory of powder	-19400	-18225	-10125	-11070	-58820
Pounds of Polyethylene powder to be purchased	58225	64800	41445	49140	213610
Cost per pound	1.5	1.5	1.5	1.5	1.5
Cost of Polyethylene powder to be purchased	87337.5	97200	62167.5	73710	320415
Cost of required finishing kits	165000	202500	112500	123000	603000
Total Cost of Direct Materials	252337.5	299700	174667.5	196710	923415

*Production finished goods units for Quarter 1, 2018 = 1100 + (20%*1500) - 220 = 1180 units

Raw Material Required = 1180*54 = 63720 pounds

Closing stock for Qtr 4, 2017 = 25% of 63720 = 15930 pounds

Direct Labor Budget

For the year ended 2019

Particulars	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total
Units to be produced	1100	1350	750	820	4020
No. of hours of more skilled labor/ unit	2	2	2	2	2
Total no. of more skilled labor	2200	2700	1500	1640	8040
Hourly rate for more skilled labor	15	15	15	15	15
Total Cost of more skilled labor	33000	40500	22500	24600	120600
Units to be produced	1100	1350	750	820	4020
No. of hours of less skilled labor/ unit	3	3	3	3	3
Total no. of less skilled labor	3300	4050	2250	2460	12060
Hourly rate for less skilled labor	12	12	12	12	12
Total Cost of less skilled labor	39600	48600	27000	29520	144720
Total Cost for Direct Labor	72600	89100	49500	54120	265320

Manufacturing Overhead Budget

For the year ended 2019

Particulars	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total
Total Cost for Direct Labor	72600	89100	49500	54120	265320
Manufacturing overhead rate per direct labor dollar	150%	150%	150%	150%	150%
Manufacturing overhead cost	108900	133650	74250	81180	397980

Selling and administrative budget

For the year ended 2019

Particulars	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total
Expected Sales Units	1000	1500	750	750	4000
Variable selling and administrative costs @ $45 per unit	45000	67500	33750	33750	180000
Fixed selling and administrative cost	7500	7500	7500	7500	30000
Total Selling and administrative cost	52500	75000	41250	41250	210,000

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