Question

Jamdown & Associates Ltd produces two products, Glam120 and Glam220. The following table provides information on budgeted production for 2018:

                                                     Production Forecast

Product	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Glam120	5,000	6,000	4,800	5,500	21,300
Glam220	6,500	4,600	5,400	6,200	22,700

Notes:

It is the company’s policy to have stock on hand at the end of each quarter equaling to 10% of production for the next quarter.

Budgeted production for the first quarter of 2019 were: Glam120, 7,000 units and Glam220, 5,800 units.

During 2018, the company plans to sell one unit of Glam120 for $600 and one unit of Glam220 for $700.       

Management has forecasted that variable overhead cost per unit for Glam120 and Glam200 would be $100 and $120 respectively during 2018, while fixed overheads for the same period were estimated to be $2,400,000 and would be incurred in equal amounts quarterly.

Required:

Calculate the number of units to be sold for both products during each quarter of 2018.

Prepare the sales budget for 2018.

Prepare the overhead cost budget for the four quarters in 2018.

Explain what is meant by a limiting budget factor.

Describe two limiting factors that could influence the achievement of Jamdown & Associates profit objectives for 2018.

Answer 1

		Product Glam120	Quarter 1,2018	Quarter 2,2018	Quarter 3,2018	Quarter 4,2018	Quarter 1 of 2019	TOTAL OF 2018
	A	Production during the Quarter	5,000	6,000	4,800	5,500	7,000	21,300
	B=0.1*A	Beginning of Quarter Inventory(10%)	500	600	480	550	700
	C=A+B	Quantity Available	5,500	6,600	5,280	6,050
	D	End of Quarter Inventory	600	480	550	700
	E=C-D	Sales During the Quarter	4,900	6,120	4,730	5,350		21,100
		Product Glam220
	F	Prodction during the Quarter	6,500	4,600	5,400	6,200	5,800	22,700
	G=F*0.1	Beginning of Quarter Inventory(10%)	650	460	540	620	580
	H=F+G	Quantity Available	7,150	5,060	5,940	6,820
	I	End of Quarter Inventory	460	540	620	580
	J=H-I	Sales During the Quarter	6,690	4,520	5,320	6,240		22,770
		SALES BUDGET FOR 2018
		Product Glam120	Quarter 1,2018	Quarter 2,2018	Quarter 3,2018	Quarter 4,2018	Total of the year 2018
	A	Unit Sales	4,900	6,120	4,730	5,350	21,100
	B	Sales Price per unit	$            600	$            600	$           600	$             600
	C=A*B	Sales Revenue	$ 2,940,000	$ 3,672,000	$ 2,838,000	$   3,210,000	$            12,660,000
		Product Glam220					0
	D	Unit Sales	6,690	4,520	5,320	6,240	22,770
	E	Sales Price per unit	$700	$700	$700	$700
	F=D*E	Sales Revenue	$4,683,000	$3,164,000	$3,724,000	$4,368,000	$            15,939,000
	G=C+F	TOTAL SALES REVENUE	$                7,623,000	$               6,836,000	$               6,562,000	$                  7,578,000	$            28,599,000
		OVERHEAD COSTBUDGET
		Product Glam120	Quarter 1,2018	Quarter 2,2018	Quarter 3,2018	Quarter 4,2018	Total of the year 2018
	A	Unit Production	5,000	6,000	4,800	5,500	21,300
	B	Variable overhead cost per unit	$            100	$            100	$           100	$             100
	C=A*B	Quarterly Variable overhead cost	$     500,000	$    600,000	$    480,000	$      550,000	$               2,130,000
		Product Glam220					0
	D	Unit Production	6,500	4,600	5,400	6,200	22,700
	E	Variable overhead cost per unit	$120	$120	$120	$120
	F=D*E	Quarterly Variable overhead cost	$780,000	$552,000	$648,000	$744,000	$               2,724,000
	G=C+F	TOTAL VARIABLE OVERHEAD COST	$                1,280,000	$               1,152,000	$               1,128,000	$                  1,294,000	$               4,854,000
	H	TOTAL FIXED OVERHEAD COSTS	$                    600,000	$                   600,000	$                  600,000	$                      600,000	$               2,400,000
	I=G+H	TOTAL OVERHEAD COSTS	$                1,880,000	$               1,752,000	$               1,728,000	$                  1,894,000	$               7,254,000
		LIMITING BUDGET FACTORS
		Limiting budget factors are the constraints that limits the growth of business or prevents the business to expand further
		Limiting Budget factors may be :
		Availability of machines
		Availability of skilled labor
		Limitation of sales demand
		Availability of raw materials