The Sabat Corporation manufactures and sells two products: Thingone and Thingtwo
ID: 2417119 • Letter: T
Question
The Sabat Corporation manufactures and sells two products: Thingone and Thingtwo. In July 2013, Sabat’s budget department gathered the following data to prepare budgets for 2014:
2014 Projected Sales
Product
Units
Price
Thingone
62,000
$172
Thingtwo
46,000
$264
2014 Inventories in Units
Expected Target
Product
January 1, 2014
December 31, 2014
Thingone
21,000
26,000
Thingtwo
13,000
14,000
The following direct materials are used in the two products:
Amount used per unit
Direct Material
Unit
Thingone
Thingtwo
A
Pound
5
6
B
Pound
3
4
C
Each
0
2
Projected data for 2014 for direct materials are:
Direct material
Anticipated purchase price
Expected inventories January 1, 2014
Target inventories December 31, 2014
A
$11
37,000lb
40,000lb
B
6
32,000lb
35,000lb
C
5
10,000 units
12,000 units
Projected direct manufacturing labor requirements and rates for 2014 are:
Product
Hours per unit
Rate per hour
Thingone
3
$11
Thingtwo
4
14
Manufacturing overhead is allocated at the rate of $ 19 per direct manufacturing labor-hour.
Based on the preceding projections and budget requirements for Thingone and Thingtwo, prepare the Âfollowing budgets for 2014:
Required
1. Revenues budget (in dollars)
2. What questions might the CEO ask the marketing manager when reviewing the revenues budget? Explain briefly.
3. Production budget (in units)
4. Direct material purchases budget (in quantities)
5. Direct material purchases budget (in dollars)
6. Direct manufacturing labor budget (in dollars)
7. Budgeted finished goods inventory at December 31, 2014 ( in dollars)
8. What questions might the CEO ask the production manager when reviewing the production, direct materials, and direct manufacturing labor budgets?
9. How does preparing a budget help Sabat Corporation’s top management better manage thecompany?
Product
Units
Price
Thingone
62,000
$172
Thingtwo
46,000
$264
Explanation / Answer
Since, there are multiple parts, the first five have been answered.
_________
Part 1)
The revenue budget is given below:
_________
Part 2)
The CEO may ask the manager the following questions:
a) Are the projected revenue figures in line with the market conditions/expectations?
b) Have the previous year's figures for the same period and immediately preceeding months been reviewed while preparing the budget?
c) Is further spending required on marketing/advertising to meet expected revenue or increase the revenue?
d) Will offering better incentives/sales commissions to sales representative/salesman enhance the revenue for the projected period?
_________
Part 3)
The production budget is given below:
_________
Part 4)
The direct material purchases budget in units is provided below:
_________
Part 5)
The direct material purchases budget in dollars is as follows:
Sabat Corporation Revenues Budget for 2014 Product Units (A) Price (B) Total Revenue (A*B) Thingone 62,000 172 10,664,000 Thingtwo 46,000 264 12,144,000 Total Budgeted Revenue $22,808,000Related Questions
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