Chapter 8, Problem 2PB

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.

To determine

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)

To determine

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)

To determine

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.

$\begin{array}{c}\text{Direct material (fabric) cost for king}\text{=}1,300\times 6.0\text{yds}\\ =7,800\text{sq}\text{. yds}\end{array}$

Working Note (2):

Calculate the direct material (wood) for king.

$\begin{array}{c}\text{Direct material (wood) cost for king}\text{=}1,300\times 38\text{linear ft}\text{.}\\ =49,400\text{linear ft}\text{.}\end{array}$

Working Note (3):

Calculate the direct material (filler) for king.

$\begin{array}{c}\text{Direct material (filler) cost for king}\text{=}1,300\times 4.2\text{cu}\text{.ft}\\ =5,460\text{cu}\text{.ft}\end{array}$

Working Note (4):

Calculate the direct material (springs) for king.

$\begin{array}{c}\text{Direct material (springs) cost for king}\text{=}1,300\times 16\text{units}\\ =20,800\text{units}\end{array}$

Working Note (5):

Calculate the direct material (fabric) for prince.

$\begin{array}{c}\text{Direct material (fabric) cost for prince}\text{=}1,490\times 4.0\text{yds}\\ =5,960\text{sq}\text{. yds}\end{array}$

Working Note (6):

Calculate the direct material (wood) for prince.

$\begin{array}{c}\text{Direct material (wood) cost for prince}\text{=}1,490\times 26\text{linear ft}\text{.}\\ =38,740\text{linear ft}\text{.}\end{array}$

Working Note (7):

Calculate the direct material (filler) for prince.

$\begin{array}{c}\text{Direct material (filler) cost for prince}\text{=}1,490\times 3.4\text{cu}\text{.ft}\\ =5,066\text{cu}\text{.ft}\end{array}$

Working Note (8):

Calculate the direct material (springs) for prince.

$\begin{array}{c}\text{Direct material (springs) cost for prince}\text{=}1,490\times 12\text{units}\\ =17,880\text{units}\end{array}$

To determine

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.

$\begin{array}{c}\text{Hours required for production}\text{=}1,300\times 1.20\text{hr}\\ =1,560\text{hrs}\end{array}$

Working Note (10):

Calculate the hours required for the production of king in cutting department.

$\begin{array}{c}\text{Hours required for production}\text{=}1,300\times 0.50\text{hr}\\ =650\text{hrs}\end{array}$

Working Note (11):

Calculate the hours required for the production of king in upholstery department.

$\begin{array}{c}\text{Hours required for production}\text{=}1,300\times 0.80\text{hr}\\ =1,040\text{hrs}\end{array}$

Working Note (12):

Calculate the hours required for the production of prince in framing department.

$\begin{array}{c}\text{Hours required for production}\text{=}1,490\times 1.00\text{hr}\\ =1,490\text{hrs}\end{array}$

Working Note (13):

Calculate the hours required for the production of prince in cutting department.

$\begin{array}{c}\text{Hours required for production}\text{=}1,490\times 0.4\text{hr}\\ =596\text{hrs}\end{array}$

Working Note (14):

Calculate the hours required for the production of prince in upholstery department.

$\begin{array}{c}\text{Hours required for production}\text{=}1,490\times 0.60\text{hr}\\ =894\text{hrs}\end{array}$