You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient.
You will be preparing a budget for the quarter July through September 2014. You are provided the following information. The budgeted balance sheet at June 30, 2014, is:
Budgeted Balance Sheet
Raw materials inventory
Finished goods inventory
Total current assets
Less accumulated depreciation
LIABILITIES AND EQUITY
Short-term notes payable
Total current liabilities
Long-term note payable
Total stockholders’ equity
Total liabilities and equity
All assumptions are new and apply to the July through September budget period.
1. Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The sales price per unit is $18.00 and the total product cost is $14.35 per unit.
2. The June 30 finished goods inventory is 16,800 units.
3. Company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales.
4. The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month’s ending raw materials inventory to equal 20% of the next month’s materials requirements.
5. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
6. Overhead is allocated based on units of production. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead.
7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.
8. Sales commissions are 12% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,750 per month. The following critical elements must be addressed by completing the budget templates found on the “Budgets” tab.
Specifically, the following critical elements must be addressed when creating an Operating Budget by completing the budget templates found on the “Budgets” tab of your student workbook.
Step 1: Prepare a Sales Budget
Complete Part A - Sales Budget on the budget tab by using the information found in the budgeted balance sheet above.
Consider assumption 1 while completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The sales price per unit is $18.00 and the total product cost is $14.35 per unit.
You can find an example of a sales budget in Exhibit 22-5 on page 1324.