DO IT! Soriano Company is preparing its master budget for 2014. Relevant data pe

Question

DO IT! Soriano 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 1,200,000 units. Quarterly sales are 20%, 25%, 30%, and 25% respectively. The sales price is expected to be $50 per unit for the first three quarters and $55 per unit beginning in the fourth quarter. Sales in the first quarter of 2015 are expected to be 10% higher than the budgeted sales for the first quarter of 2014 Production: Management desires to maintain ending finished goods inventories at 25% of next quarter's budgeted sales volume. Direct materials: Each unit requires 3 pounds of raw materials at a cost of $5 per pound. Management desires to maintain raw materials inventories at 5% of the next quarter's production requirements. Assume the production requirements for the first quarter of 2015 are 810,000 pounds

Explanation / Answer

SORIANO COMPANY Sales Budget For the Year Ending December 31, 2014 Quarter 1 2 3 4 Year Expected unit sales                  240,000                  300,000                  360,000                  300,000          1,200,000 Unit selling price x $50 x $50 x $50 x $55 Total sales $        12,000,000 $        15,000,000 $        18,000,000 $        16,500,000 $   61,500,000 SORIANO COMPANY Production Budget For the Year Ending December 31, 2014 Quarter 1 2 3 4 Year Expected unit sales                  240,000                  300,000                  360,000                  300,000 Add: Desired ending finished goods unitsa                     75,000                     90,000                     75,000 66,000b Total required units                  315,000                  390,000                  435,000                  366,000 Less: Beginning finished goods units 60,000c                     75,000                     90,000                     75,000 Required production units                  255,000                  315,000                  345,000                  291,000          1,206,000 a25% of next quarter's unit sales bEstimated first quarter 2015 sales units: 240,000 + (240,000 x 10%)   264,000: 264,000 x 25% c25% of estimated first quarter 2014 sales units (240,000 x 25%) SORIANO COMPANY Direct Materials Budget For the Year Ending December 31, 2014 Quarter 1 2 3 4 Year Units to be produced                  255,000                  315,000                  345,000                  291,000 Direct materials per unit x 3 x 3 x 3 x 3 Total pounds needed for production                  765,000                  945,000               1,035,000                  873,000 Add: Desired ending direct materials (pounds)                     47,250                     51,750                     43,650 40,500a Total materials required                  812,250                  996,750               1,078,650                  913,500 Less: Beginning direct materials (pounds) 38,250b                     47,250                     51,750                     43,650 Direct materials purchases 774,000 949,500 1,026,900 869,850 Cost per pound x $5 x $5 x $5 x $5 Total cost of direct materials purchases $          3,870,000 $          4,747,500 $          5,134,500 $          4,349,250 $   18,101,250 aEstimated first quarter 2018 production requirements: 810,000 x 5% = 40,500 b5% of estimated first quarter pounds needed for production

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