Question

Exercise 2) Price, Inc., bottles and distributes mineral water from the company’s natural springs in northern Oregon. Price markets two products: 12-ounce disposable plastic bottles and 1-gallon reusable plastic containers. Required: A) For 2021, Price marketing managers project quarterly sales of 1,260,000 12-ounce bottles and 547,500 1-gallon containers. Average selling prices are estimated at $0.20 per 12-ounce bottle and $1.50 per 1-gallon container. Prepare a revenues budget for Price, Inc., for the year ending December 31, 2021. B) Price begins 2021 with 890,000 12-ounce bottles in inventory. The vice president of operations requests that 12-ounce bottles ending inventory on December 31, 2021, be no less than 680,000 bottles. Based on sales projections as budgeted previously, what is the minimum number of 12- ounce bottles Price must produce during 2021? C) The VP of operations requests that ending inventory of 1-gallon containers on December 31, 2021, be 240,000 units. If the production budget calls for Price to produce 1,900,000 1-gallon containers during 2021, what is the beginning inventory of 1-gallon containers on January 1, 2021?

Answer 1

A. Revenues budget for Price, Inc. for the year ending December 31, 2021

12-ounce bottles units sold = 1,260,000 per quarter. Hence, 1,260,000*4 = 5,040,000 units for the entire year.

1-gallon containers unit sold = 547,500 per quarter. Hence, 547,500*4 = 2,190,000 units for the entire year.

Total revenue for 12-ounce bottles = No. of units * Average selling price per unit = 5,040,000*0.2 = $1,008,000

Total revenue for 1-gallon containers = No. of units * Average selling price per unit = 2,190,000*1.5 = $3,285,000

Total budeted revenue = $1,008,000 + $3,285,000 = $4,293,000.

B. Minimum number of 12- ounce bottles Price must produce during 2021

Budgeted unit sales (12-ounce bottles) 5,040,000

Add: target ending finished goods inventory 680,000

Total requirements 5,720,000

Less: beginning finished goods inventory (890,000)

Minimum Units to be produced    4,830,000  

C. Beginning inventory of 1-gallon containers on January 1, 2021

Beginning inventory = Budgeted sales units + Target ending inventory - Budgeted production

= 2,190,000 + 240,000 - 1,900,000 = 530,000 1-gallon units.