Sales. Sales for the year are expected to total 1,000,000 units uarterly sales a

Question

Sales. Sales for the year are expected to total 1,000,000 units uarterly sales are 21% 25% 27 and 27% respec ve y. The sa es price is expected to $38 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 10% higher than the budgeted sales for the first quarter of 2017. Production. Management desires to maintain the ending finished goods inventories at 20% of the next quarters budgeted sa esvou me Direct materials. Each unit requires 2 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 2018 are 499,000 pounds Prepare the sales, production, and direct materials budgets by quarters for 2017. PARGO COMPANY Sales Budget Quarter 2 3 Yes Expected unit sales Unit selling price Total sales PARGO COMPANY Production Budget 2 Year

Explanation / Answer

In the given case we are required to compute the Sales budget , production budget & Direct Material budget.

Let's first understand it briefly what a Sales budget is.

Sales budget reflects the units estimated to be sold in a given period of time. It also involves computation of budgeted Sales revenue. Thus budget is very important input for the other operational Budgets like production budget, direct material budget.

Statement of Sales budget:

Wn1 : Calculation of estimated units to be sold

Q1 : ( 1000000* 21%) = 210000 units

Q2 : (1000000*25%) = 250000 units

Q3 & Q4 : (1000000* 27%) = 270000 units

Now let's understand production budget, It helps in determining the total units of the goods to be Produced in a given period of time. In the budget the input is taken from the Sales budget.

Statement of production budget.

B) Ending Inventory( 20% of next quarters Budgeted Sales units)

Q1 : 250000* 20%= 50000

Q2 : 270000* 20%= 54000

Q3 : 270000* 20%= 54000

Q4 : 231000*20% = 46200

{ Wn2)

Wn 2.

Since it's required bas per given question to maintain the ending inventory of 20% of the next quarters budgeted sales. Hence for Q4 we will take the Budgeted Sales of first quatqua of 2018 , which is given as 10 % higher than the Budgeted Sales of first quarter of 2017.

Therefore the Budgeted Sales of First quarter of 2018 = Quater sales of Q1 2017 * 110% i.e 210000 * 110% = 231000 units. Hence the Ending inveInven to be kept in Q4 of 2017 = 20% of 231000 i.e 46200 units.

After production budget we are required to compute the Direct Material Purchased Budget. This budget helps in determining the Volume/ units of Direct Material we need for the production of the required units of Production Budget. So this budget gets its input from Production Budget.

Statement of Direct Material Budget

E) Add : Ending Inventory of Raw material ( 10% of next quarters production requirement)

Wn 4

Less: Beginning Inventory of Raw material i.e 10% of current quarters production requirement of Raw material.

Wn 5

538440 units

Wn4 : Since the Ending Inventory of Raw material is 10% of the next quarters raw material requirement for production.

FOR Q4 2017 the ending inventory would be the 10% of raw material requirement for production of first quarter of 2018 i.e given to be 499000 pounds.

Hence Q4 ending inventory is 10% of 499000 = 49900 units.

Particulars Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year A)Unit sales(wn1) 210000 250000 270000 270000 1000000 B)Sales price (given in the problem) $38 $38 $38 $45 -

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