Question

Exercise 2:

Pillows Unlimited makes decorative throw pillows for home use. The company sells the pillows to home décor retailers for $14 per pillow. Each pillow requires 1.25 yards of fabric, which the company obtains at a cost of $6 per yard. The company would like to maintain an ending stock of fabric equal to 10% of the next month’s production requirements. The company would also like to maintain and ending stock of finished pillows equal to 20% of the next month sales.

Sales (in units) are projected to be as follows for the first 3 months of the year:

January	200,000
February	220,000
March	230,000

Requirements:

1- Prepare the following budgets for the first three months of the year, as well as a summary budget for the quarter:

2- Prepare the sale budget, including a separate section that details the types of sales made. For this section, assume that 20% of the company’s pillows are cash sales, while the remaining 80% are sold on credit terms.

3- Prepare the production budget. Assume that the company anticipates selling 240,000 units in April.

4- Prepare the direct materials purchase budget assume that the company need 300,000 yards of fabric for production in April.

Note :the Answer Should be computerized

Answer 1

Pillows Unlimitted
Sales Budget
	January	February	March	Total
Sales Units	200,000	220,000	230,000	650,000
Sales price PU	$14	$14	$14	$14
Sales	$2,800,000	$3,080,000	$3,220,000	$9,100,000
Cash sales - 20%	$          5,600,000	$          6,160,000	$          6,440,000	$        18,200,000
Credi sales - 80%	$        22,400,000	$        24,640,000	$        25,760,000	$        72,800,000
Production Budget
	January	February	March	Total
Sales Units	200,000	220,000	230,000	650,000
Add: 20% Ending Stock	44000	46000	48000	48000	(20% x 240000 april)
Total units req	244,000	266,000	278,000	698,000
Less: Beginning stock	40000	44000	46000	40000	(20% x 200000 January)
Production req	204,000	222,000	232,000	658000
Direct Materials Budget
Production req	204,000	222,000	232,000	658,000
x Material per unit	1.25	1.25	1.25	1.25
Total Material Req for prod	255000	277500	290000	822500
Add: 10% Ending Stock	27750	29000	30000	30000	(10% x 300000 April)
Total units req	282750	306500	320000	852500
Less: Beginning Stock	25500	27750	29000	25500
Purchase Req	257250	278750	291000	827000
Cost per pound	$6	$6	$6	$6
Total cost	$1,543,500	$1,672,500	$1,746,000	$4,962,000