Oak Creek Company is preparing its master budget for 2011. Relevant data pertain
ID: 2347062 • Letter: O
Question
Oak Creek Company is preparing its master budget for 2011. Relevant data pertaining to its sales, production, and direct materials budgets are as follows. Sales: Sales for the year are expected to total 1,000,000 units. Quarterly sales are 20%, 23%, 26%, and 31%, respectively. The sales price is expected to be $41 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2012 are expected to be 13% higher than the budgeted sales for the first quarter of 2011. Production: Management desires to maintain the ending finished goods inventories at 21% of the next quarter's budgeted sales volume. In 2010, the company held ending finished goods inventory equal to 21% of the next quarter's budgeted sales volume. Direct materials: Each unit requires 1 pounds of raw materials at a cost of $11 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter's production requirements. Assume the production requirements for first quarter of 2012 are 450,700 pounds. In 2010, the company held ending raw materials inventory equal to 10% of the next quarter's production requirements. Prepare the sales, production, and direct materials budgets by quarters for 2011.
Explanation / Answer
sales budget
1
2
3
4
year
expected unit sales
200000
230000
260000
310000
1,000,000
unit selling price
41
41
41
45
total sales
8200000
9430000
10660000
13950000
42240000
production budget
1
2
3
4
year
expected units sales
200000
230000
260000
310000
1,000,000
add
desired finished goods units
48300
54600
65100
47460
47460
total required units
248300
284600
325100
357460
1,047,460
less
beginning fiished goods units
42000
48300
54600
65100
42000
required production units
206300
236300
270500
292360
1,005,460
direct materials budget
1
2
3
4
year
units to be produced
206300
236300
270500
292360
1,005,460
direct materials per unit
1
1
1
1
1
total pounds needed for production
206300
236300
270500
292360
1,005,460
add desired ending DM
23630
27050
29236
45070
45,070
total materials required
229930
263350
299736
337430
1,050,530
less
beginning DM
20630
23630
27050
29236
20630
direct matrial purhases
209300
239720
272686
308194
1,029,900
cost per pound
11
11
11
11
11
total cost
2302300
2636920
2999546
3390134
11328900
sales budget
1
2
3
4
year
expected unit sales
200000
230000
260000
310000
1,000,000
unit selling price
41
41
41
45
total sales
8200000
9430000
10660000
13950000
42240000
production budget
1
2
3
4
year
expected units sales
200000
230000
260000
310000
1,000,000
add
desired finished goods units
48300
54600
65100
47460
47460
total required units
248300
284600
325100
357460
1,047,460
less
beginning fiished goods units
42000
48300
54600
65100
42000
required production units
206300
236300
270500
292360
1,005,460
direct materials budget
1
2
3
4
year
units to be produced
206300
236300
270500
292360
1,005,460
direct materials per unit
1
1
1
1
1
total pounds needed for production
206300
236300
270500
292360
1,005,460
add desired ending DM
23630
27050
29236
45070
45,070
total materials required
229930
263350
299736
337430
1,050,530
less
beginning DM
20630
23630
27050
29236
20630
direct matrial purhases
209300
239720
272686
308194
1,029,900
cost per pound
11
11
11
11
11
total cost
2302300
2636920
2999546
3390134
11328900
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