Question

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:

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.

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

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

Answer 1