Question

In: Accounting

Vaughn Enterprises is a boutique guitar manufacturer. The company produces both acoustic and electric guitars for...

Vaughn Enterprises is a boutique guitar manufacturer. The company produces both acoustic and electric guitars for rising and established professional musicians. Vanessa Aaron, the company’s sales manager, prepared the following sales forecast for 2018. The forecasted sales prices include a 5% increase in the acoustic guitar price and a 10% increase in the electric guitar price, to cover anticipated increases in raw materials prices.

Sales Price 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Acoustic guitar sales $1,290 200 260 300 310
Electric guitar sales $2,380 390 340 300 370
On December 31, 2017, Vaughn had 30 acoustic guitars in stock—fewer than the desired inventory level of 80 guitars, based on the following quarter’s sales. The company has budgeted for sales of 240 acoustic guitars in the first quarter of 2019. Prepare the 2018 production budget for acoustic guitars.
Production Budget

1stQuarter

2nd Quarter

3rdQuarter

4th Quarter

Annual

                                                                      Budgeted unit sales

Budgeted ending inventory
Total units required
Beginning inventory
Budgeted production

Solutions

Expert Solution

  • Desired Ending Inventory level = 80 units desired/200 1st qtr sale = 40%

Production Budget

1stQuarter

2nd Quarter

3rdQuarter

4th Quarter

Annual

Budgeted unit sales

                           200

                   260

                     300

                     310

             1,070

Budgeted ending inventory

                           104 [260 x 40%]

                   120 [300 x 40%]

                     124 [310 x 40%]

                       96 [240 x 40%]

                   96

Total units required

                           304

                   380

                     424

                     406

             1,166

Beginning inventory

                             30

                   104

                     120

                     124

                   30

Budgeted production

                           274

                   276

                     304

                     282

             1,136


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