
Concept explainers
Sales, production, direct materials purchases, and direct labor cost budgets
The budget director of Royal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for February is summarized as follows:
Estimated sales of King and Prince chairs for February by sales territory:
Estimated inventories at February 1:
Desired inventories at February 28:
Direct materials used in production:
Anticipated purchase price for direct materials:
Direct labor requirements:
Instructions
Prepare a sales budget for February.
Prepare a production budget for February.
Prepare a direct materials purchases budget for February.
Prepare a direct labor cost budget for February.
1.

Prepare the sales budget for the month ending February 28.
Explanation of Solution
Budgeting:
Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.
The following table shows the sales budget.
Company R Sales Budget For the Month Ending February 28 | |||
Product and Area | Unit Sales Volume | Unit Selling Price ($) | Total Sales ($) |
(A) | (B) | (A) × (B) | |
King: | |||
Northern Domestic | 610 | 780 | 475,800 |
Southern Domestic | 340 | 780 | 265,200 |
International | 360 | 850 | 306,000 |
Total | 1,310 | 1,047,000 | |
Prince: | |||
Northern Domestic | 750 | 550 | 412,500 |
Southern Domestic | 440 | 550 | 242,000 |
International | 290 | 600 | 174,000 |
Total | 1,480 | 828,500 | |
Total Revenue from Sales | 1,875,500 |
Table (1)
2.

Prepare the production budget for the month ending February 28.
Explanation of Solution
The following table shows the production budget.
Company R Production Budget For the Month Ending February 28 | ||
Details | Units | |
King | Prince | |
Expected Units to be Sold | 1,310 | 1,480 |
Add: Desired Inventory, February 28 | 80 | 35 |
Total Units Required | 1,390 | 1,515 |
Less: Estimated Inventory, February 1 | (90) | (25) |
Total Units to be Produced | 1,300 | 1,490 |
Table (2)
3.

Prepare the direct materials purchase budget for the month ending February 28.
Explanation of Solution
The following table shows the direct materials purchase budget.
Company R Direct Materials Purchase Budget For the Month Ending February 28 | ||||
Details | Units | |||
Fabric | Wood | Filler | Springs | |
Required units for production: | ||||
King | 7,800 (1) | 49,400 (2) | 5,460 (3) | 20,800 (4) |
Prince | 5,960 (5) | 38,740 (6) | 5,066 (7) | 17,880 (8) |
Add: Desired inventory, February 28 | 390 | 650 | 300 | 540 |
Total units required | 14,150 | 88,790 | 10,826 | 39,220 |
Less: Estimated inventory, February 1 | (420) | (580) | (250) | (660) |
Total units to be purchased (A) | 13,730 | 88,210 | 10,576 | 38,560 |
Unit price (B) | $12 | $7 | $3 | $4.50 |
Total (A) × (B) | $164,760 | $617,470 | $31,728 | $173,520 |
Total direct materials to be purchased | 987,478 |
Table (3)
Working Note (1):
Calculate the direct material (fabric) for king.
Working Note (2):
Calculate the direct material (wood) for king.
Working Note (3):
Calculate the direct material (filler) for king.
Working Note (4):
Calculate the direct material (springs) for king.
Working Note (5):
Calculate the direct material (fabric) for prince.
Working Note (6):
Calculate the direct material (wood) for prince.
Working Note (7):
Calculate the direct material (filler) for prince.
Working Note (8):
Calculate the direct material (springs) for prince.
4.

Prepare the direct labor cost budget of Company R.
Explanation of Solution
The following table shows the direct labor cost budget for framing, cutting, and upholstery department.
Company R | |||
Direct Labor Cost Budget | |||
For the Month Ending February 28 | |||
Particulars | Framing Department |
Cutting Department |
Upholstery Department |
Hours Required for Production: | |||
King | 1,560 (9) | 650 (10) | 1,040 (11) |
Prince | 1,490 (12) | 596 (13) | 894 (14) |
Total Hours Required (A) | 3,050 | 1,246 | 1,934 |
Hourly Rate (B) | $12 | $14 | $15 |
Total Cost (A) × (B) | $36,600 | $17,444 | $29,010 |
Total Direct Labor Cost | 83,054 |
Table (4)
Working Note (9):
Calculate the hours required for the production of king in framing department.
Working Note (10):
Calculate the hours required for the production of king in cutting department.
Working Note (11):
Calculate the hours required for the production of king in upholstery department.
Working Note (12):
Calculate the hours required for the production of prince in framing department.
Working Note (13):
Calculate the hours required for the production of prince in cutting department.
Working Note (14):
Calculate the hours required for the production of prince in upholstery department.
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