Question

RiverbedCompany is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows. Sales. Sales for the year are expected to total 1,400,000 units. Quarterly sales are 18%, 26%, 24%, and 32%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $46 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 10% higher than the budgeted sales for the first quarter of 2017. Production. Management desires to maintain the ending finished goods inventories at 20% of the next quarter’s budgeted sales volume. Direct materials. Each unit requires 2 pounds of raw materials at a cost of $12 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 505,000 pounds.

A.) Prepare the production budget by quarters for 2017.

B.) Prepare the direct materials budget by quarters for 2017.

Answer 1

Solution :

(1) Production Budget :

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	For The Year
(a) Sales Units	252,000	364,000	336,000	448,000	1,400,000
(b) Desired Inventory at the end of Quarter	72,800	67,200	89,600	55,440	55,440
(c) Total Units Required	324,800	431,200	425,600	503,440	1,455,440
(d) Opening Inventory	252,000 * 0.20 = 50,400	72,800	67,200	89,600	50,400
(e) Total Production in Units(c-d)	274,400	358,400	358,400	413,840	1,405,040

Desired Inventory at the end of Quarter :

1st Quarter = 364,000 * 0.20 = 72,800

2nd Quarter = 336,000 * 0.20 = 67,200

3rd Quarter = 448,000 * 0.20 = 89,600

4th Quarter = 252,000 * 1.10 * 0.20 = 55,440

(2) Direct Material Budget

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	For The Year
(a) Units to be Produced	274,400	358,400	358,400	413,840	1,405,040
(b) Direct Material Required in Production	548,800	716,800	716,800	827,680	2,810,080
(c) Desired Direct Material at the end of Quarter	71,680	71,680	82,768	50,500	50,500
(d) Total Material Required (b+c)	620,480	788,480	799,568	878,180	2.860.580
(e) Opening stock of Material	548,800 * 0.10 = 54,880	71,680	71,680	82,768	54,880
(f) Total Material to be Purchased (d-e)	565,600	716,800	727,888	795,412	2,805,700
(g) Price Per Units	$ 12	$ 12	$ 12	$ 12	$ 12
(h) Total Budgeted Purchases	$ 6,787,200	$ 8,601,600	$ 8,734,656	$ 9,544,944	$ 33,668,400

Desired Direct Material at the end of Quarter :

1st Quarter = 358,400 * 2 * 0.10 = 71,680

2nd Quarter = 358,400 * 2 * 0.10 = 71,680

3rd Quarter = 413,840 * 2 * 0.10 = 82,768

4th Quarter = 505,000 * 0.10 = 50,500

Working :

Sales Budget :

Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Sales Units Each Quarter	1,400,000 * 18% = 252,000	1,400,000 * 26% = 364,000	1,400,000 * 24% = 336,000	1,400,000 * 32% = 448,000	1,400,000
Sales Price Per Units	$ 40	$ 40	$ 40	$ 46
Sales Value	$ 10,080,000	$ 14,560,000	$ 13,440,000	$ 20,608,000	$ 58,688,000

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