On January 1, 2020, the Ivanhoe Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2020. Sales units: First quarter 6,000; second quarter 6,900; third quarter 7,400. Ending raw materials inventory: 40% of the next quarter’s production requirements. Ending finished goods inventory: 25% of the next quarter’s expected sales units. Third-quarter production: 7,840 units. The ending raw materials and finished goods inventories at December 31, 2019, follow the same percentage relationships to production and sales that occur in 2020. 4 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $5 per pound.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
On January 1, 2020, the Ivanhoe Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2020.
| Sales units: | First quarter 6,000; second quarter 6,900; third quarter 7,400. | |
| Ending raw materials inventory: | 40% of the next quarter’s production requirements. | |
| Ending finished goods inventory: | 25% of the next quarter’s expected sales units. | |
| Third-quarter production: | 7,840 units. |
The ending raw materials and finished goods inventories at December 31, 2019, follow the same percentage relationships to production and sales that occur in 2020. 4 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $5 per pound.
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