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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Use the following information for Exercises 9-50 and 9-51:

Assume that Stillwater Designs produces two automotive subwoofers: S12L7 and S12L5. The S12L7 sells for $475, and the S12L5 sells for $300. Projected sales (number of speakers) for the coming 5 quarters are as follows:

Chapter 9, Problem 51E, Use the following information for Exercises 9-50 and 9-51: Assume that Stillwater Designs produces

The vice president of sales believes that the projected sales are realistic and can be achieved by the company.

Exercise 9-51 Production Budget

Refer to the information regarding Stillwater Designs on the previous page. Stillwater Designs needs a production budget for each product (representing the amount that must be outsourced to manufacturers located in Asia). Beginning inventory of S12L7 for the first quarter of 20X1 was 340 boxes. The company’s policy is to have 20% of the next quarter’s sales of S12L7 in ending inventory. Beginning inventory of S12L5 was 170 boxes. The company’s policy is to have 30% of the next quarter’s sales of S12L5 in ending inventory.

Required:

Prepare a production budget for each quarter for 20X1 and for the year in total.

To determine

Make production budget for the year.

Explanation

Production Budget:

Production budget is a part of operating budget and it is prepared on the basis of sales budget. Production budget is prepared by adding units required in ending inventory and subtracting units available in the beginning inventory to the expected sales units.

Preparation of production budget for the year:

ParticularsQ-1 (units)Q-2 (units)Q-3 (units)Q-4 (units)Total (units)
S12L719002,8805,4003,86013,040
S12L521,5502,5704,8803,09012,090
Total2,4505,45010,2806,95025,130

Table (1)

Working Notes:

1. Presentation of production budget for product S12L7:

ParticularsUnits
Quarter-1 
Expected sales800
Add: Closing units (20%×2,200) 440
Less: Opening units (given)340
Expected Production (1)900
  
Quarter-2 
Expected sales2,200
Add: Closing units (20%×5,600) 1,120
Less: Opening units (closing units of quarter-1)440
Expected Production (2)2,880
  
Quarter-3 
Expected sales5,600
Add: Closing units (20%×4,600) 920
Less: Opening units (closing units of quarter-2)1,120
Expected Production (3)5,400
  
Quarter-4 
Expected sales4,600
Add: Closing units (20%×900) 180
Less: Opening units (closing units of quarter-3)920
Expected Production (4)3,860
Total (1+2+3+4) 13,040

Table (2)

2

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