Concept explainers
Comprehensive summary problem (Learning Objectives 2 8 3)
Birdhouses Inc. makes backyard birdhouses. The company sells the birdhouses to home improvement stores for $20 per birdfeeder. Each birdhouse requires 2.0 board feet of wood, which the company obtains at a cost of $5 per board foot. The company would like to maintain an ending stock of wood equal to 15% of the next month’s production requirements. The company would also like to maintain an ending stock of finished birdfeeders equal to 10% of the next month’s sales.
Sales data for the company is as follows:
Units | |
October actual sales (prior year) | 72.000 |
November actual sales (prior year) | 84.000 |
December actual sales (prior year) | 91,000 |
January projected sales | 95.000 |
February projected sales | 105,000 |
March projected sales | 110,000 |
April projected sales | 125,000 |
In any given month, 25% of the total sales are cash sales, while the remainder are credit sales.
The company’s collection history indicates that 75% of credit sales is collected in the month after the sale, 15% is collected two months after the sale, 8% is collected three months after the sale, and the remaining 2% is never collected. Assume that the total cost of direct materials purchases in December was $1,001,000. The company pays 60% of its direct materials purchases in the month of purchase and pays the remaining 40% in the month after purchase.
Requirements
- 1. Prepare the following budgets for the first three months of the year, as well as a summary budget for the quarter.
- 2. Prepare the sales budget, including a separate section that details the type of sales made (cash versus credit).
- 3. Prepare the production budget.
- 4. Prepare the direct materials purchases budget. Assume the company needs 242,000 board feet of wood for production in April.
- 5. Prepare the cash collections budget for January, February, and March, as well as a summary for the first quarter.
- 6. Prepare the
cash payments budget for direct materials purchases for the months of January, February, and March, as well as a summary for the first quarter.
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