Question

Sales, Production, Direct Materials Purchases, and Direct Labor Cost Budgets

The budget director of Royal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for February is summarized as follows:

a. Estimated sales of King and Prince chairs for February by sales territory:

Northern Domestic:
King	610 units at $780 per unit
Prince	750 units at $550 per unit
Southern Domestic:
King	340 units at $780 per unit
Prince	440 units at $550 per unit
International:
King	360 units at $850 per unit
Prince	290 units at $600 per unit

b. Estimated inventories at February 1:

Direct materials:
Fabric	420 sq. yds.
Wood	580 linear ft.
Filler	250 cu. ft.
Springs	660 units
Finished products:
King	90 units
Prince	25 units

c. Desired inventories at February 28:

Direct materials:
Fabric	390 sq. yds.
Wood	650 linear ft.
Filler	300 cu. ft.
Springs	540 units
Finished products:
King	80 units
Prince	35 units

d. Direct materials used in production:

In manufacture of King:
Fabric	6.0 sq. yds. per unit of product
Wood	38 linear ft. per unit of product
Filler	4.2 cu. ft. per unit of product
Springs	16 units per unit of product
In manufacture of Prince:
Fabric	4.0 sq. yds. per unit of product
Wood	26 linear ft. per unit of product
Filler	3.4 cu. ft. per unit of product
Springs	12 units per unit of product

e. Anticipated purchase price for direct materials:

Fabric	$12.00	per sq. yd.
Wood	7.00	per linear ft.
Filler	$3.00	per cu. ft.
Springs	4.50	per unit

f. Direct labor requirements:

King:
Framing Department	1.2 hrs. at $12 per hr.
Cutting Department.	0.5 hr. at $14 per hr.
Upholstery Department	0.8 hr. at $15 per hr.
Prince:
Framing Department	1.0 hr. at $12 per hr.
Cutting Department.	0.4 hr. at $14 per hr.
Upholstery Department	0.6 hr. at $15 per hr.

Required:

1. Prepare a sales budget for February.

Royal Furniture Company Sales Budget For the Month Ending February 28
Product and Area		Unit Sales Volume	Unit Selling Price	Total Sales
King:
	Northern Domestic
	Southern Domestic
	International
	Total
Prince:
	Northern Domestic
	Southern Domestic
	International
	Total
Total revenue from sales

2. Prepare a production budget for February.

Royal Furniture Company Production Budget For the Month Ending February 28
	Units
	King	Prince
Expected units to be sold
Plus desired inventory, February 28
Total units required
Less estimated inventory, February 1
Total units to be produced

3. Prepare a direct materials purchases budget for February.

Royal Furniture Company Direct Materials Purchases Budget For the Month Ending February 28
	Direct Materials
		Fabric (sq. yds.)		Wood (linear ft.)		Filler (cu. ft.)		Springs (units)	Total
Required units for production:
King
Prince
Plus desired inventory, February 28
Total units required
Less estimated inventory, February 1
Total units to be purchased
Unit price
Total direct materials to be purchased

4. Prepare a direct labor cost budget for February.

Royal Furniture Company Direct Labor Cost Budget For the Month Ending February 28
			Framing Department		Cutting Department		Upholstery Department	Total
Hours required for production:
	King
	Prince
	Total hours required
Hourly rate
Total direct labor cost

Answer 1

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1. Prepare a sales budget for February.
Royal Furniture Company
Sales Budget
For the Month Ending February 28
		Unit Sales	Unit Selling	Total Sales
		Volume	Price
King:
Northern Domestic		610	$                   780	$          475,800
Southern Domestic		340	$                   780	$          265,200
International		360	$                   850	$          306,000
Total		1,310		$      1,047,000
Prince:
Northern Domestic		750	$                   550	$          412,500
Southern Domestic		440	$                   550	$          242,000
International		290	$                   600	$          174,000
Total		1,480		$          828,500
Total revenue from sales		2,790		$      1,875,500
2. Prepare a production budget for February.
Royal Furniture Company
Production Budget
For the Month Ending February 28
	Units
	King	Prince
Expected units to be sold	1,310	1,480
Plus desired inventory, February 28	80	35
Total units required	1,390	1,515
Less estimated inventory, February 1	-90	-25
Total units to be produced	1,300	1,490
3. Prepare a direct materials purchases budget for February.
Royal Furniture Company
Direct Materials Purchases Budget
For the Month Ending February 28
		Direct Materials
		Fabric	Wood	Filler	Springs	Total
		(sq. yds.)	(linear ft.)	(cu. ft.)	(units)
Required units for production:
King		7,800	49,400	5,460	20,800
Prince		5,960	38,740	5,066	17,880
Plus desired inventory, February 28		390	650	300	540
Total units required		14,150	88,790	10,826	39,220
Less estimated inventory, February 1		-420	-580	-250	-660
Total units to be purchased		13,730	88,210	10,576	38,560
Unit price		$            12.00	$                  7.00	$                 3.00	$          4.50
Total direct materials to be purchased		$       164,760	$           617,470	$            31,728	$   173,520	$   987,478
4. Prepare a direct labor cost budget for February.
Royal Furniture Company
Direct Labor Cost Budget
For the Month Ending February 28
		Framing	Cutting	Upholstery	Total
		Department	Department	Department
Hours required for production:
King		1,560	650	1,040
Prince		1,490	596	894
Total hours required		$            3,050	$               1,246	$              1,934
Hourly rate		$                  12	$                     14	$                    15
Total direct labor cost		$          36,600	$             17,444	$            29,010	$     83,054