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 quartersare given below. Deluxe StandardFirst quarter 12,000 90,000Second quarter 14,300 88,400Third quarter 16,600 92,000Fourth quarter 20,000 91,600 The president of the company believes that the projected sales are realistic and can beachieved by the company. In the factory, the production supervisor has received the projectedsales figures and gathered information needed to compile production budgets. He found that1,300 deluxes and 1,170 standards were in inventory on January 1. Company policy dictates thatending inventory should equal 20 percent of the next quarter’s sales for deluxes and 10 percentof next quarter’s sales for standards.Required:1. Prepare a sales budget for each quarter and for the year in total. Show sales by product andin total for each time period.2. What factors might Berring Company have considered in preparing the sales budget?3. Prepare a separate production budget for each product for each of the first three quarters ofthe year.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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 12,000 90,000
Second quarter 14,300 88,400
Third quarter 16,600 92,000
Fourth quarter 20,000 91,600
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.
Required:
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. What factors might Berring Company have considered in preparing the sales budget?
3. Prepare a separate production budget for each product for each of the first three quarters of
the year.
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