The marketing department of IKEA Inc. has submitted the following sales forecast for the upcoming fiscal year. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Budgeted unit sales 7,000 6,000 10,000 8,000 The company expects to start the first quarter with 1,500 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 20% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,100 units. Each unit requires 0.75 direct labor-hours, and direct laborers are paid $16.00 per labor hour. The variable portion of its predetermined manufacturing overhead rate is $ 4 per direct labor-hour and its total fixed manufacturing overhead is $35,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $8,000 per quarter. The company’s variable selling and administrative expense per unit is $7.50. Fixed selling and administrative expenses include advertising expenses of $10,000 per quarter, executive salaries of $30,000 per quarter, and depreciation of $8,000 per quarter. In addition, the company will make insurance payments of $5,000 in the in the third quarter and property taxes of $8,000 will be paid in the second quarter. Requirement: A) Prepare the company’s production budget for the upcoming fiscal year B) Prepare the company’s direct labor budget for the upcoming fiscal year C) Prepare the company’s manufacturing overheads budget for the upcoming fiscal year
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.
The marketing department of IKEA Inc. has submitted the following sales
upcoming fiscal year.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit sales 7,000 6,000 10,000 8,000
The company expects to start the first quarter with 1,500 units in finished goods inventory. Management
desires an ending finished goods inventory in each quarter equal to 20% of the next quarter’s budgeted sales.
The desired ending finished goods inventory for the fourth quarter is 1,100 units.
Each unit requires 0.75 direct labor-hours, and direct laborers are paid $16.00 per labor hour.
The variable portion of its predetermined manufacturing overhead rate is $ 4 per direct labor-hour and its
total fixed manufacturing overhead is $35,000 per quarter. The only noncash item included in fixed
manufacturing overhead is
The company’s variable selling and administrative expense per unit is $7.50. Fixed selling and administrative
expenses include advertising expenses of $10,000 per quarter, executive salaries of $30,000 per quarter, and
depreciation of $8,000 per quarter. In addition, the company will make insurance payments of $5,000 in the
in the third quarter and property taxes of $8,000 will be paid in the second quarter.
Requirement:
A) Prepare the company’s production budget for the upcoming fiscal year
B) Prepare the company’s direct labor budget for the upcoming fiscal year
C) Prepare the company’s manufacturing overheads budget for the upcoming fiscal year
D) Prepare the company’s selling and administrative expense budget for the upcoming fiscal year.
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