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Chapter 22: Q23E (page 1233)

Preparing an operating budget—sales and production budgets

Lugo Company manufactures drinking glasses. One unit is a package of eight glasses, which sells for $30. Lugo projects sales for April will be 2,000 packages, with sales increasing by 250 packages per month for May, June, and July. On April 1, Lugo has 325 packages on hand but desires to maintain an ending inventory of 20% of the next month’s sales. Prepare a sales budget and a production budget for Lugo for April, May, and June.

Short Answer

Expert verified

Answer

Budgeted tablets to be produced

2,125

2,300

2,550

2,800

Budgeted sales revenue

$60,000

$67,500

$75,000

$82,500

Step by step solution

01

Preparation of sales budget


April

May

June

July

No. of units to be sold

2,000

2,250

2,500

2,750

Selling price per unit

X $30

X $30

X $30

X $30

Budgeted sales revenue

$60,000

$67,500

$75,000

$82,500

02

Preparation of production budget


April

May

June

July

No. of units to be sold

2,000

2,250

2,500

2,750

Plus: Desired tablets in ending inventory

450

500

550

600

Total units needed

2,450

2,750

3,050

3,350

Less: Tablets in beginning inventory

325

450

500

550

Budgeted tablets to be produced

2,125

2,300

2,550

2,800

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Most popular questions from this chapter

Question: Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets

The Langley Batting Company manufactures wood baseball bats. Langley’s two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Langley sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for \(40; the adult bat sells for \)65. Langley’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Langley’s balance sheet for December 31, 2018, follows:

Other data for Langley Batting Company for the first quarter of 2019:

a. Budgeted sales are 1,200 youth bats and 2,600 adult bats.

b. Finished Goods Inventory on December 31, 2018, consists of 300 youth bats at \(14 each and 950 adult bats at \)18 each.

c. Desired ending Finished Goods Inventory is 350 youth bats and 300 adult bats; FIFO inventory costing method is used.

d. Direct materials requirements are 48 ounces of wood per youth bat and 56 ounces of wood per adult bat. The cost of wood is \(0.25 per ounce.

e. Raw Materials Inventory of December 31, 2018, consists of 24,000 ounces of wood at \)0.25 per ounce.

f. Desired ending Raw Materials Inventory is 24,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).

g. Each bat requires 0.7 hours of direct labor; direct labor costs average \(18 per hour. h. Variable manufacturing overhead is \)0.30 per bat.

i. Fixed manufacturing overhead includes \(1,300 per quarter in depreciation and \)20,140 per quarter for other costs, such as insurance and property taxes.

j. Fixed selling and administrative expenses include \(9,000 per quarter for salaries; \)2,500 per quarter for rent; \(1,000 per quarter for insurance; and \)200 per quarter for depreciation.

k. Variable selling and administrative expenses include supplies at 2% of sales.

Requirements

1. Prepare Langley’s sales budget for the first quarter of 2019.

2. Prepare Langley’s production budget for the first quarter of 2019.

3. Prepare Langley’s direct materials budget, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.

4. Prepare Langley’s cost of goods sold budget for the first quarter of 2019.

5. Prepare Langley’s selling and administrative expense budget for the first quarter of 2019.

Preparing an operating budget—sales budget

Trailers sells its rock-climbing shoes worldwide. Trailers expects to sell 6,500 pairs of shoes for \(185 each in January and 4,000 pairs of shoes for \)220 each in February. All sales are cash only. Prepare the sales budget for January and February.

Preparing the financial budget—cash budget

Use the original schedule of cash receipts completed in Exercise E22-26, Requirement 1, and the schedule of cash payments completed in Exercise E22-27 to complete a cash budget for Marcel Company for January, February, and March.

Additional information: Marcel’s beginning cash balance is \(5,000, and Marcel desires to maintain a minimum ending cash balance of \)5,000. Marcel borrows cash as needed at the beginning of each month in increments of \(1,000 and repays the amounts borrowed in increments of \)1,000 at the beginning of months when excess cash is available. The interest rate on amounts borrowed is 8% per year. Interest is paid at the beginning of the month on the outstanding balance from the previous month.

What are the three sections of the cash budget?

Preparing a financial budget—cash budget

Booth has \(12,500 in cash on hand on January 1 and has collected the following budget data:

January February

Sales \) 529,000 \( 568,000

Cash receipts from customers 443,000 502,200

Cash payments for direct materials purchases 180,624 160,284

Direct labor costs 135,010 113,348

Manufacturing overhead costs (includes

depreciation of \)900 per month) 55,058 53,922

Assume direct labor costs and manufacturing overhead costs are paid in the month incurred. Additionally, assume Booth has cash payments for selling and administrative expenses including salaries of \(40,000 per month plus commissions that are 1% of sales, all paid in the month of sale. The company requires a minimum cash balance of \)20,000. Prepare a cash budget for January and February. Round to the nearest dollar. Will Booth need to borrow cash by the end of February?
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