Question

Berring Company produces two products: the deluxe and the standard. The deluxe sells for $40, and the standard sells for $10. Projected sales of the two models for the coming four quarters are given below.

Deluxe Standard
First quarter 11,000 90,000
Second quarter 14,500 88,600
Third quarter 16,800 93,000
Fourth quarter 20,000 91,400

The president of the company believes that the projected sales are realistic and can be achieved by the company. In the factory, the production supervisor has received the projected sales figures and gathered information needed to compile production budgets. He found that 1,300 deluxes and 1,170 standards were in inventory on January 1. Company policy dictates that ending inventory should equal 20 percent of the next quarter's sales for deluxes and 10 percent of next quarter's sales for standards.

1. Prepare a sales budget for each quarter and for the year in total. Show sales by product and in total for each time period.

2. Prepare a separate production budget for each product for each of the first three quarters of th

Answer 1

1. Sales budgetThe sales budget is a schedule of planned sales figures and is a key component of the master budget. For Berring Company, the sales budget can be prepared as follows:Sales BudgetDeluxeStandardTotalFirst QuarterSales in units11,00090,000101,000Sales revenue$440,000$900,000$1,340,000Second QuarterSales in units14,50088,600103,100Sales revenue$580,000$886,000$1,466,000Third QuarterSales in units16,80093,000109,800Sales revenue$672,000$930,000$1,602,000Fourth QuarterSales in units20,00091,400111,400Sales revenue$800,000$914,000$1,714,000Total Sales for the yearSales in units62,300363,000425,300Sales revenue$2,492,000$3,630,000$6,122,0002. Production budgetA production budget is a plan of the number of units to be produced during the budget period. For Berring Company, the production budget can be prepared as follows:DeluxeProductQuarter 1Quarter 2Quarter 3Beginning inventory1,3001,0001,930Add: Production10,70014,40016,080Total11,00015,40018,010Less: Sales11,00014,50016,800Ending inventory20% of next quarter’s sales2,9002,9003,360Production required10,7001,80013,250StandardProductQuarter 1Quarter 2Quarter 3Beginning inventory1,1701,6202,130Add: Production89,83087,98091,500Total91,00089,60093,630Less: Sales90,00088,60093,000Ending inventory10% of next quarter’s sales8,8609,3009,300Production required89,86089,68094,330