Sales Budget FlashKick Company manufactures and sells soccer balls for teams of children in elementary and high school. FlashKick’s best-selling lines are the practice ball line (durable soccer balls for training and practice) and the match ball line (high-performance soccer balls used in games). In the first four months of next year, FlashKick expects to sell the following:

___________________Practice Balls__________________________________ Match Balls

_______________Units________________ Selling Price________________ Units __________________Selling Price

January _________50,000 ________________$8.25_____________________ 7,000 __________________$16.00

February__________ 58,000______________ $8.25_____________________ 7,500___________________ $16.00

March ____________80,000_______________ $8.25 ____________________13,000 __________________$16.00

April_____________ 100,000_______________ $8.25____________________ 18,000__________________ $16.00

Required:

1. Construct a sales budget for FlashKick for the first three months of the coming year. Show total sales for each product line by month and in total for the first quarter. If required, round your answers to the nearest cent.

FlashKick Company

Sales Budget

For the First Quarter of Next Year

________________January__________________ February_____________ March____________ Quarter

Practice ball:

Units____________?__________________________?__________________?__________________?

Unit price________ $ __________________________$ _________________$ __________________$

Sales___________ $ __________________________$_________________ $__________________ $

Match ball:

Units____________?__________________________?__________________?__________________?

Unit price________ $__________________________ $_________________ $__________________ $

Sales ___________$ __________________________$_________________ $__________________ $

Total sales_______ $__________________________ $_________________ $__________________ $

2. What if FlashKick added a third line—tournament quality soccer balls that were expected to take 40 percent of the units sold of the match balls and would have a selling price of $45 each in January and February, and $48 each in March? Prepare a sales budget for FlashKick for the first three months of the coming year. Show total sales for each product line by month and in total for the first quarter. If required, round your answers to the nearest cent.

FlashKick Company

Sales Budget

For the First Quarter

___________________January___________________ February_______________ March ______________Quarter

Practice ball:

Units______________?__________________________?_______________________?__________________?

Unit price__________ $__________________________ $______________________ $__________________ $

Sales _____________$ __________________________$ ______________________$ __________________$

Match ball:

Units_____________?___________________________?_______________________?___________________?

Unit price_________ $___________________________ $______________________ $___________________ $

Sales ____________$ ___________________________$ ______________________$ ___________________$

Tournament ball:

Units____________?____________________________?_______________________?___________________?

Unit price________ $____________________________ $______________________ $___________________ $

Sales___________ $____________________________ $______________________ $___________________ $

Total sales _______$ ____________________________$ ______________________$ ___________________$

Assume Hadley Co has the following purchases of inventory during the first month of operations

Assuming Hadley sells 300 units at $11 each, what is the cost of goods sold if weighted average is used?

Dallas Corporation prepared the following two income statements:

During the third quarter, the company’s internal auditors discovered that the ending inventory for the first quarter should have been $4,900. The ending inventory for the second quarter was correct.  

Required:

1. What effect would the error have on total Income from Operations for the two quarters combined?
2. What effect would the error have on Income from Operations for each of the two quarters?
3. Prepare corrected income statements for each quarter. Ignore income taxes.

Dallas Corporation prepared the following two income statements:

During the third quarter, the company’s internal auditors discovered that the ending inventory for the first quarter should have been $6,400. The ending inventory for the second quarter was correct.  

Required:

1. What effect would the error have on total Income from Operations for the two quarters combined?
2. What effect would the error have on Income from Operations for each of the two quarters?
3. Prepare corrected income statements for each quarter. Ignore income taxes.

Exercise 7-14 Sales and Production Budgets [LO7-2, LO7-3]

Exercise 7-14 Sales and Production Budgets [LO7-2, LO7-3]

References

Required information

[The following information applies to the questions displayed below.]

Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows:

The company’s chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2017 budget:

The budgeted unit sales are 12,000 units, 37,000 units, 15,000 units, and 25,000 units for quarters 1-4, respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $32 per unit. The budgeted unit sales for the first quarter of 2018 is 13,000 units.

All sales are on credit. Uncollectible accounts are negligible and can be ignored. Seventy-five percent of all credit sales are collected in the quarter of the sale and 25% are collected in the subsequent quarter.

Each quarter’s ending finished goods inventory should equal 15% of the next quarter’s unit sales.

Each unit of finished goods requires 3.5 yards of raw material that costs $3.00 per yard. Each quarter’s ending raw materials inventory should equal 10% of the next quarter’s production needs. The estimated ending raw materials inventory on December 31, 2017 is 5,000 yards.

Seventy percent of each quarter’s purchases are paid for in the quarter of purchase. The remaining 30% of each quarter’s purchases are paid in the following quarter.

Direct laborers are paid $18 an hour and each unit of finished goods requires 0.25 direct labor-hours to complete. All direct labor costs are paid in the quarter incurred.

The budgeted variable manufacturing overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhead is $150,000 including $20,000 of depreciation on equipment. The number of direct labor-hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs (excluding depreciation) are paid in the quarter incurred.

The budgeted variable selling and administrative expense is $1.25 per unit sold. The fixed selling and administrative expenses per quarter include advertising ($25,000), executive salaries ($64,000), insurance ($12,000), property tax ($8,000), and depreciation expense ($8,000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred.

The company plans to maintain a minimum cash balance at the end of each quarter of $30,000. Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The company’s lender imposes a simple interest rate of 3% per quarter on any borrowings.

Dividends of $15,000 will be declared and paid in each quarter.

The company uses a last-in, first-out (LIFO) inventory flow assumption. This means that the most recently purchased raw materials are the “first-out” to production and the most recently completed finished goods are the “first-out” to customers.

Required:

The company’s CFO has asked you to prepare the 2017 master budget. To fulfill this request, prepare the following budget schedules and financial statements.

1. Income statement for the year ended December 31, 2017.

2. Balance sheet at December 31, 2017.

Tell me what information you need, first.

1. What are the four phases of the business cycle? How long do business cycles last? Why does the business cycle affect output and employment more severely in durable goods industries than in nondurable goods industries?

Topanga Group began operations early in 2021. Inventory purchase information for the quarter ended March 31, 2021, for Topanga’s only product is provided below. The unit costs include the cost of freight. The company uses a periodic inventory system to report inventory and cost of goods sold.

Sales for the quarter, all at $8 per unit, totaled 24,000 units leaving 16,000 units on hand at the end of the quarter.

Required:
1. Calculate Topanga's cost of goods sold for the first quarter using:

1. FIFO
2. LIFO
3. Average cost

2. Calculate Topanga's gross profit ratio for the first quarter using FIFO, LIFO, and Average cost.
3. Comment on the relative effect of each of the three inventory methods on the gross profit ratio.

• Req 1A
• Req 1B
• Req 1C
• Req 2
• Req 3

Calculate Topanga's cost of goods sold for the first quarter using FIFO.

• Req 1B
• Req 1C
• Req 2
• Req 3

Calculate Topanga's cost of goods sold for the first quarter using LIFO.

Calculate Topanga's cost of goods sold for the first quarter using average cost. (Round average cost per unit to 4 decimal places.)

Calculate Topanga's gross profit ratio for the first quarter using FIFO, LIFO, and Average cost.

Comment on the relative effect of each of the three inventory methods on the gross profit ratio.

Jasper Fruits Corporation wholesales peaches and oranges. Barbara Jasper is working with the company’s accountant to prepare next year’s budget. Ms. Jasper estimates that sales will increase 3 percent for peaches and 8 percent for oranges. The current year’s sales revenue data follow:

Based on the company’s past experience, cost of goods sold is usually 70 percent of sales revenue. Company policy is to keep 20 percent of the next period’s estimated cost of goods sold as the current period’s ending inventory. (Hint: Use the cost of goods sold for the first quarter to determine the beginning inventory for the first quarter.)

Required

a. Prepare the company’s sales budget for the next year for each quarter by individual product.

b. If the selling and administrative expenses are estimated to be $680,000, prepare the company’s budgeted annual income statement.

c. Ms.Jasper estimates next year’s ending inventory will be $35,900 for peaches and $57,400 for oranges. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product.

Ms. Jasper estimates next year’s ending inventory will be 35,900 for peaches. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product. (Round your final answers to nearest whole dollar.)

Ms. Jasper estimates next year’s ending inventory will be 57,400 for oranges. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product. (Round your final answers to nearest whole dollar.)