In: Accounting
Rani Lopez owner of Rani Flowers and Gifts produces
gift baskets for various special occasions. Each gift basket
includes fruit or assorted small gifts (e.g. a coffee mug, deck of
cards, novelty cocoa mixes and scented soap) in a basket that is
wrapped in colorful cellophane.
Rani has estimated the following unit sales of the standard gift
basket for the rest of the year and for January of next year.
Units
September 250
October 200
November 230
December 380
January 100
Rani likes to have 5% of the next month’s sales needs on hand at
the end of each month. This requirement was met on August 31.
Two materials are needed for each gift basket:
Fruits 1 kg
Small gifts 6 items
The materials inventory policy is to have 5ū% of the next month’s
fruit needs on hand and 30% of the next month’s production needs of
small gifts. Materials inventory on September 1 met this company
policy.
Required:
a) Prepare a production budget for September, October, November and
December for gift basket. (Note: Round all answers to the nearest
whole
unit).
b) Prepare a direct materials purchases budget for the two types of
materials used in production of gift basket for months of
September, October and November. (Note: Round all answers to the
nearest whole
unit).
c) Why do you think there is such a big difference in budgeted
units from November to December? Why did Rani budget fewer units in
January than December?
Solution a & b
Formulae used
Solution c) Since Christmas is celebrated in December, there would be a high demand for gifts. This could be the reason for an increase in the budgeted units from November to December.
Buyers usually spend less on gifts after the holiday seson.This could be the reason for budgeting fewer units in January than in December.