Assignment Chapter 9 Lo 1 21 Preparing A Sales Budget Patric

Assignmentchapter 9 Lo 1 21 Preparing A Sales Budgetpatrick Inc S

Prepare a sales budget for the first three months of the coming year for Patrick Inc., which sells industrial solvents in five-gallon drums. The expected units sold and the unit price are provided, and the budget should show units and sales revenue by month and for the quarter.

Additionally, prepare a production budget for the first quarter, considering the policy to maintain 25 percent of next month's sales in ending inventory, starting with 4,600 drums on hand on January 1.

Next, prepare a direct materials purchases budget for chemicals and drums for January and February, including calculations for ending inventories based on projected production needs, costs per gallon and per drum, and the necessary purchases.

Furthermore, develop a direct labor budget for January, February, and March, considering the production forecast, hours per unit, and wage rate.

Lastly, prepare a production budget for Stillwater Designs' two products, S12L7 and S12L5, for four quarters, considering beginning inventories, sales projections, and inventory policies of 20 and 30 percent, respectively.

Sample Paper For Above instruction

Introduction

The budgeting process is fundamental for effective financial planning and operational control within manufacturing companies. This paper illustrates the preparation of various budgets—sales, production, and direct materials budgets—for Patrick Inc. and Stillwater Designs, highlighting how these budgets facilitate strategic decision-making and resource allocation.

Sales Budget for Patrick Inc.

Patrick Inc. projects sales units in the first quarter of the upcoming year based on historical data and market analysis. With a unit sales forecast of 5,000, 6,200, and 7,000 drums for January, February, and March respectively, and an average price per drum of $38, the total sales revenue is calculated accordingly. The revenue for each month is obtained by multiplying units sold by the unit price, and the total for the quarter is the sum of these monthly revenues.

For instance, January sales revenue is 5,000 units multiplied by $38, equaling $190,000. Repeating this for subsequent months yields a comprehensive sales forecast that guides production and inventory planning.

Production Budget Development

The production budget accounts for projected sales and desired ending inventories, which are set at 25 percent of the following month's sales units. Beginning inventory assumptions and inventory policies influence the production needs for each month. For January, the calculation involves summing the forecasted sales units and the desired ending inventory, then subtracting beginning inventory to determine units to produce.

For example, to produce enough drums for January, sales of 5,000 units combined with a desired ending inventory of 6,200 units multiplied by 25 percent gives the desired ending inventory. Subtracting the beginning inventory of 4,600 drums results in the production requirement for January.

Direct Materials Budgeting

The chemical and drum requirements are dictated by the production forecast—each drum requires 6 gallons of chemicals and 1 drum of raw material. The inventory policy mandates holding 20 percent of the next month's production needs as ending inventory. Cost assumptions include $2.00 per gallon for chemicals and $1.60 per drum.

Calculations involve determining ending inventory in gallons and drums, which are based on production schedules. Beginning inventory figures are derived from previous period policies. For January, the ending inventory of chemicals includes 20 percent of February's chemical requirement, and similarly for drums, which impacts purchase quantities.

Direct Labor Budget Considerations

The labor budget estimates the direct labor hours needed for production each month, considering that each drum takes 0.3 hours and the hourly wage rate is $17.10. Multiplying the hours per unit by projected units gives total labor hours, and multiplying by wages yields labor costs, guiding staffing and payroll planning.

Production Budget for Stillwater Designs

The company manufactures two products: S12L7 and S12L5, with projected quarterly sales figures. Beginning inventories and desired ending inventories are considered based on policy percentages. The production requirement is calculated by adding projected sales and desired ending inventory, then subtracting beginning inventory.

For S12L7, starting with 340 units, the quarterly sales projections of each quarter are used to determine the necessary production, ensuring inventory policies are maintained. The same method applies to S12L5, starting with 170 units.

Conclusion

The budgets formulated in this exercise exemplify how systematic financial planning supports operational efficiency in manufacturing firms. They ensure that resource procurement aligns with production needs, inventory policies are maintained, and sales expectations are met, ultimately facilitating strategic growth and sustainability.

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