Problem 14-16 a. Sales Budget January February March Total Sales on account $200
ID: 2362076 • Letter: P
Question
Problem 14-16 a. Sales Budget January February March Total Sales on account $200,000 220,000 $242,000 $662,000 b. Sales revenue for the quarter is equal to the sum of the monthly amounts = $662,000). c. Schedule of Cash Receipts January February March Receipts from January sales 140,000 Receipts from January sales $ 154,000 Receipts from January sales 169,000 Receipts from February sales xxxx Receipts from February sales xxxx Receipts from March sales xxxx Total $xxx xxx xxxx d. Schedule of Cash Receipts January February March April May Receipts from January sales xxxx Receipts from January sales xxxx Receipts from January sales xxxx Receipts from February sales xxxx Receipts from February sales xxxx Receipts from February sales $xxxx Receipts from March sales xxxx Receipts from March sales xxxx Receipts from March sales xxxx Total xxxx xxxx $xxxx xxxx xxxx The accounts receivable as of March 31, 2012 is equal to the amount due to be collected in April and May from the first quarter sales, = xxxxx Problem 14-18 You can use the contribution margin ratio to determine sales. Contribution margin ratio = Sales (100%)Explanation / Answer
Sales Budget All budgets rely on information from the sales budget. The operating budget process begins with the sales budget which includes a forecast of revenues generated by the sales department and sales VPs in the company. A number of sources are used by managers to estimate how much sales will occur in the future including economic forecasts, mathematical models, industry data, and statistical trend analysis. For most companies, sales forecasting is the most difficult part of budgeting. Fortunately for you, it is the easiest part because this information will be given to you. If it were up to you to forecast sales, problems would result with a different solution for each person in the classroom. Example At January 1, 2012, Arrant, Inc. had 1,100 stools on hand. Its policy is to maintain an ending inventory equal to 15% of the next month’s sales. Arrant Co. estimates it will sell 44,000 step stools during the first month of 2008 with a 7% increase in sales each subsequent month. Each stool is sold for $16. Prepare a sales budget for the first three months of the year. Solution A lot more information is provided in this problem than what you need. Because sales is an independently generated amount that is not based on the number of units in inventory, so all of the inventory information provided in this problem is irrelevant for the sales budget. You have been provided the sales in units for January. February's also will be 7% larger than January so multiply January units by 107% or 1.07 to get February's sales. March's sales add an increase of another 7% on top of the already increased February sales. The sales for each month are as follows: Sales in units for January = 44,000 Sales in units for February = 44,000*1.07 = 47,080 Sales in units for March = 47,080*1.07 = 50,376 Sales revenue for March = 50,376 In preparing the budget, you should never show prior period amounts. Only amounts for future periods should be included in the budget. Every budget should begin with a standard, three-line statement heading which includes with the company name, the name of the budget, and the time period it covers. The sales budget for this example will appear as follows: DT. Inc. Sales Budget Three Months Covering January thru March of 2012 January February March Sales in units 44,000 47,080 50,376 Selling price per unit $ 16.00 $ 16.00 $ 16.00 Budgeted sales revenue $704,000 $753,280 $806,010 Production Budget The production department manufactures products based on the number of units the sales people have forecasted to sell. The sales budget reflects the number of units to be sold. The production schedule enables the production supervisor to hire and schedule employees and the purchasing department to plan for ordering materials needed. It is important to make the distinction between two types of units--.finished goods units and raw materials units. Think about which of these units the company will sell. Because finished goods are the units that are sold, these are the units that are produced. Budgeted sales of finished units + Desired ending inventory of finished goods (FG) units - Beginning inventory of FG units = FG units to be produced Example Schroeder Inc. sells placemats for $15 each. The company’s budgeted unit sales for 4 months during 2008 appears below. February 39,000 April 42,000 May 44,000 June 40,000 Schroeder needs to have total mats on hand at the end of each month equal to 15 percent of the following month’s budgeted unit sales. Each mat requires 0.25 yards of fabric. At the end of each month, Schroeder desires to have 20 percent of production material needs required for the next month on hand. The fabric costs $2.60 per yard. Each mat produced requires 0.15 hours of direct labor. How many mats should Schroeder produce during the month of April? Solution Begin with the number of units the company expects to sell during April, a total of 42,000. The production people need to make enough units to cover the 42,000 to be sold, plus enough left over at the end of the month of which to start the next month. THe company wants to have 15% of what they expect to see the next month, May, left over: 15% x 44,000 = 6,600. FG units to be sold 42,000 + Desired FG ending inventory 6,600 However, the company had some completed units left over at the beginning of April that reduce the number of units that need to be produced during April. The inventory balance at the end of March was budgeted at 15% times April sales, giving 15% x 42,000, or 6,300 units left over at March 31. The last day of March and the first day of April should always have the same inventory balance. DT. Inc. Production Budget Month Ending April 30, 2008 FG units to be sold 42,000 + Desired FG ending inventory (15%*44.000) 6,600 - Beginning FG inventory on hand expected (15%*42,000) (6,300) FG units (Placements) to be produced 42,300 Because the production budget only determines the number of units to be produced, no dollar signs should be displayed. Direct Materials Purchases Budge The direct materials purchase budget depends on the amounts needed for production and the amount of raw materials needed for the ending inventory and held in the beginning inventories. The amount of direct materials to be purchased is calculated as follows: Budgeted FG units to be produced x RM needed for each FG unit = Total RM needed for production + Desired RM ending inventory - Beginning RM on hand = RM needed to purchase x Cost per RM unit = Budgeted cost of purchases The general approach is to begin with production units, not sales units. Why? You want to know how much to 'produce', not to sell, so use the production units. In dealing with production, there are three issues you must consider: the number of FG units, the number of units of raw materials (pounds, yards, etc.) and the cost per unit. You must remember two crucial rules in materials purchases budgets. First. convert each amount used in the materials purchases budget to whatever denomination in which materials are ordered, i.e., pounds, yards, grams, kilos, etc. Second, always wait until the last step to consider the cost of the materials. Example: Trump Inc. produces trinkets. Each trinket requires 0.4 board feet of wood and 1.25 hours of direct labor. Wood costs $1.40 per board foot. Trump pays it employees $18.00 per hour. Trump desires to have 20% of the materials needed for production during the next month on hand at the end of each month, and 15% of the number of trinkets to be sold the next month on hand at the end of each month. Scheduled sales and production in units are: Budgeted Sales Budgeted Production April 4,200 4,100 May 4,500 4,700 June 5,200 5,300 Prepare a materials purchases budget for May in good form. Calculate budgeted raw materials inventory on the balance sheet at April 30 & May 31. Solution While both units to be sold and units to be produced are listed, you only need 'produced' because those are the units in which the materials will be consumed during the period. The second line of the budget immediately converts the FG units to be produced to the denomination in which they are bought....i.e., in board feet. Every amount from this point on is listed in board feet. Budgeted trinkets (FG) to be produced 4,700 Board feet needed for each trinket 0.4 Board feet needed for production 1,880 You now add in the desired ending inventory. This is often tricky because two different 'ending inventories' are cited in the problem. Be sure you focus on 'raw materials' and not 'finished goods.' We are concerned with the 20% inventory levels, not the 15% levels that appear in this problem. The 15% amount pertain to finished goods--we already know how many finished goods to produce, i.e., the budgeted production numbers provided above. The raw materials requirements state: Trump desires to have 20% of the materials needed for production during the next month on hand at the end of each month, Dates are important. The end of the budget period is May 31. The 'next' month's production is the month of June, so the company wants enough materials to make 20% of June's units...20% times 5,300 units to be produced in June times 0.4 board feet each, for a total of 424 board feet. Budgeted trinkets (FG) to be produced 4,700 Board feet needed for each trinket 0.4 Board feet needed for production 1,880 Add desired RM ending inventory 424 Next is to subtract out the beginning inventory which is left over from the previous month (April,) At the end of April, management desires to have 20% of the materials needed for the next month---May. 4,700 will be produced in May, so 4,700 times 0.4 board feet each times 20% gives us 376 feet. Adding the board feet needed to the ending inventory minus the beginning inventory gives us 1,928 feet needed for purchase. Budgeted trinkets (FG) to be produced 4,700 Board feet needed for each trinket 0.4 Board feet needed for production 1,880 Add desired RM ending inventory 424 Less beginning RM on hand (376) Board feet needed to purchase 1,928 Once the number of feet to be purchased is determined, finally the cost per board foot is factored in. Budgeted trinkets (FG) to be produced 4,700 Board feet needed for each trinket 0.4 Board feet needed for production 1,880 Add desired RM ending inventory 424 Less beginning RM on hand (376) Board feet needed to purchase 1,928 Cost per board foot $1.40 Budgeted cost of purchases $2,699 Note that last line represents the 'cost' of purchases, not the cash to be paid for purchases, and not the cost of goods sold. Cash payments are often made partially during the current month and part the next month. To calculate budgeted raw materials inventory on the balance sheet at April 30 & May 31, we look at the budget to determine the number of feet that were scheduled to be on hand on those dates. This calculation is the same amount you use for beginning and ending inventory on the materials purchases budget multiplied by the cost per board foot. Note that balance sheet amounts are always in dollars, not feet, pounds, yards, etc. Board feet at April 30 = 20% x 4,700 x 0.4 = 376 board feet Cost at April 30 = 376 BF x $1.40 = $526.40 Board feet at May 31 = 20% x 5,300 x 0.4 = 424 board feet Cost at May 31 = 424 BF x $1.40 = $593.60