Question

Scholastic Furniture, Inc. manufactures a variety of desks, chairs, tables, and shelf units that are sold to public school systems throughout the Midwest. The controller of the company’s Desk Division is currently preparing a budget for the second quarter of the year. The following sales forecast has been made by the division’s sales manager.

April 10,000 desk-and-chair sets
May 12,000 desk-and-chair sets
June 15,000 desk-and-chair sets

Each desk-and-chair set requires 10 board feet of pine planks and 1.5 hours of direct labor. Each set sells for $50. Pine planks cost $.50 per board foot, and the division ends each month with enough wood to cover 10 percent of the next month's production requirements. The division incurs a cost of $20 per hour for direct-labor wages and fringe benefits. The division ends each month with enough finished-goods inventory to cover 20 percent of the next month's sales.

Required
Complete the following budget schedules.
1. Sales budget.
2. Production budget (in sets).
3. Raw-material purchases
4. Direct-labor budget.

Answer 1

The raw-material purchases budget is created to determine the amount of pine planks needed for production. It takes into account the forecasted sales and the ending inventory of pine planks. By using this information, we can calculate the total amount of pine planks to be purchased each month.

Step-by-step explanation:

To complete the raw-material purchases budget, we need to determine the amount of pine planks needed for production. Each desk-and-chair set requires 10 board feet of pine planks, and the forecasted sales for each month are provided in the question. Additionally, we need to consider the ending inventory of pine planks, which should cover 10% of the next month's production requirements. By using these figures, we can calculate the total amount of pine planks to be purchased for each month.

Answer 2

1. Sales budget.

April: $ 500,000

May: $ 600,000

June: $ 750,000

2. Production budget (in sets).

April: 12,400 u.

May: 12,600 u.

June: 12,000 u.

3. Raw-material purchases

April: $68,300

May: $62,700

June: $54,000

4. Direct-labor budget.

April: $372,000

May: $378,000

June: $360,000

Step-by-step explanation:

1) Sales buget

The sales forecast is:

-April: 10,000 desk-and-chair sets

-May: 12,000 desk-and-chair sets

-June: 15,000 desk-and-chair sets

Each set sells for $50.

Then, the sales budget is:

April: 10,000 u. x 50 $/u = $ 500,000

May: 12,000 u. x 50 $/u = $ 600,000

June: 15,000 u. x 50 $/u = $ 750,000

2) Production budget

We have to convert the sales forecast, and assured that there is enough final inventory to cover 20% of the next month's sales.

April: 10,000 +0.2*12,000 = 10,000 + 2,400 = 12,400 u.

May: 0.8*12,000 + 0.2*15,000 = 9,600 + 3,000 = 12,600 u.

June: 0.8*15,000 = 12,000 u.

NOTE:

For April, we know we have to manufacture the 20% needed for May.

In May, the 20% manufactured in April is already done (so we need to produce only 80% of May's demand), but we have to produce a surplus to cover June's 20% demand.

For June there is no extra production, as we don't have a forceast for July.

3) Raw-material purchases

- Each desk and chair requires 10 boards feet

- Each board cost $0.50.

- The final inventory of each month has to cover 10% of the next month production requirements.

Boards budget (board per unit * units required* cost of the board):

April: 10*(12,400+0.10*12,600)*$0.50 = 136,600 boards feet * $0.50 = $68,300

May: 10*(0.90*12,600+0.10*12,000)*$0.50 = 125,400*$0.50 = $62,700

June: 10*(0.90*12,000)*$50 = 108,000*$0.50= $54,000

Direct labor budget

- Each desk and chair requires 1.5 hours of direct labor.

- The cost is $20 per hour.

April: 12,400u. * 1.5 h/u * $20/h = $372,000

May: 12,600u. * 1.5 h/u * $20/h = $378,000

June: 12,000u. * 1.5 h/u * $20/h = $360,000