Do It! Review 21-3 Ash Creek Company is preparing its master budget for 2014. Re

Question

Do It! Review 21-3 Ash Creek Company is preparing its master budget for 2014. Relevant data pertaining to its sales, production, and direct materials budgets are as follows. Sales: Sales for the year are expected to total 1,500,000 units. Quarterly sales are 20%, 24%, 25%, and 31%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $46 per unit beginning in the fourth quarter. Sales in the first quarter of 2015 are expected to be 15% higher than the budgeted sales for the first quarter of 2014 ASH CREEK COMPANY Direct Materials Budget For the Year Ending December 31, 2014 Production: Management desires to maintain the ending finished goods inventories at 20% of the next quarter's budgeted sales volume Year Direct materials: Each unit requires 2 pounds of raw materials at a cost of $10 per pound Management desires to maintain raw materials inventories at 10% of the next quarter's production requirements. Assume the production requirements for the first quarter of 2015 are 492,400 pounds Prepare the sales, production, and direct materials budgets by quarters for 2014. (Round answers to O decimal places, e.g. 5,275.) ASH CREEK COMPANY Sales Budget For the Year Ending December 31, 2014 Quarter 3 Expected unit sales Unit selling price Total sales ASH CREEK COMPANY Production Budget For the Year Ending December 31, 2014 Click if you would like to Show Work for this question: open Show Work

Explanation / Answer

2. Production Budget:

3. Direct Materials Budget:

1500000 20% 300000 40 1500000 24% 360000 40 1500000 25% 375000 40 1500000 31% 465000 46 ASH CREEK COMPANY Sales Budget For the year ending December 31, 2014 1 2 3 4 Year Expected Unit Sales 300000 360000 375000 465000 1500000 Unit Selling Price 40 40 40 46 Total Sales $ 12,000,000 $ 14,400,000 $ 15,000,000 $ 21,390,000 $        62,790,000

2. Production Budget:

Quarter: Required production units = Expected unit sales + Desired ending finished goods units - Beginning finished goods units 300000+72000-60000 312000 360000+75000-72000 363000 375000+93000-75000 393000 465000+69000-93000 441000 360000*20% 72000 300000*20% 60000 375000*20% 75000 360000*20% 72000 465000*20% 93000 375000*20% 75000 300000*(115%)*20% 69000 465000*20% 93000 ASH CREEK COMPANY Production Budget For the year ending December 31, 2014 1 2 3 4 Year Expected Unit Sales 300000 360000 375000 465000 Add: Desired Ending finished goods units 72000 75000 93000 69000 Required production Units 372000 435000 468000 534000 Less: Beginning finished goods units 60000 72000 75000 93000 Total Production 312000 363000 393000 441000 1509000

3. Direct Materials Budget:

Units to be produced x Direct Materials Budget = Total pounds needed for production + : Desired ending direct materials (pounds) = Total materials required - Beginning direct materials (pounds) = Direct materials purchases x Cost per pound = Total cost of direct materials purchases Quarter: 1 312000*2 624000 (624000+72600-62400)*10 6342000 2 363000*2 726000 (726000+78600-72600)*10 7320000 3 393000*2 786000 (786000+88200-78600)*10 7956000 4 441000*2 882000 (882000+49240-88200)*10 8430400 Total cost of Direct Material $        30,048,400 726000*10% 786000*10% 882000*10% 492400*10% - Given ASH CREEK COMPANY Direct Materials Budget For the year ending December 31, 2014 Units to be produced 312000 363000 393000 441000 Direct Materials Budget 2 2 2 2 Total Pounds needed for production 624000 726000 786000 882000 Add: Desired Ending Direct Materials (Pounds) 72600 78600 88200 49240 Total materials Required 696600 804600 874200 931240 Less: Beginning Direct Materials (Pounds) 62400 72600 78600 88200 Direct Material Purchases 634200 732000 795600 843040 Cost per Pound 10 10 10 10 Total Cost of Direct Material Purchases 6342000 7320000 7956000 8430400 $        30,048,400

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