Question

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:

a. Estimated sales of King and Prince chairs for February by sales territory:

Northern Domestic:
King	610 units at $780 per unit
Prince	750 units at $550 per unit
Southern Domestic:
King	340 units at $780 per unit
Prince	440 units at $550 per unit
International:
King	360 units at $850 per unit
Prince	290 units at $600 per unit

b. Estimated inventories at February 1:

Direct materials:
Fabric	420 sq. yds.
Wood	580 linear ft.
Filler	250 cu. ft.
Springs	660 units
Finished products:
King	90 units
Prince	25 units

c. Desired inventories at February 28:

Direct materials:
Fabric	390 sq. yds.
Wood	650 linear ft.
Filler	300 cu. ft.
Springs	540 units
Finished products:
King	80 units
Prince	35 units

d. Direct materials used in production:

In manufacture of King:
Fabric	6.0 sq. yds. per unit of product
Wood	38 linear ft. per unit of product
Filler	4.2 cu. ft. per unit of product
Springs	16 units per unit of product
In manufacture of Prince:
Fabric	4.0 sq. yds. per unit of product
Wood	26 linear ft. per unit of product
Filler	3.4 cu. ft. per unit of product
Springs	12 units per unit of product

e. Anticipated purchase price for direct materials:

Fabric	$12.00	per sq. yd.
Wood	7.00	per linear ft.
Filler	$3.00	per cu. ft.
Springs	4.50	per unit

f. Direct labor requirements:

King:
Framing Department	1.2 hrs. at $12 per hr.
Cutting Department	0.5 hr. at $14 per hr.
Upholstery Department	0.8 hr. at $15 per hr.
Prince:
Framing Department	1.0 hr. at $12 per hr.
Cutting Department	0.4 hr. at $14 per hr.
Upholstery Department	0.6 hr. at $15 per hr.

Required:

1. Prepare a sales budget for February.

Royal Furniture Company Sales Budget For the Month Ending February 28
Product and Area		Unit Sales Volume	Unit Selling Price	Total Sales
King:
	Northern Domestic		$	$
	Southern Domestic
	International
	Total			$
Prince:
	Northern Domestic		$	$
	Southern Domestic
	International
	Total			$
Total revenue from sales				$

2. Prepare a production budget for February. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Royal Furniture Company Production Budget For the Month Ending February 28
	Units
	King	Prince
Expected units to be sold
Desired inventory, February 28
Total units available
Estimated inventory, February 1
Total units to be produced

3. Prepare a direct materials purchases budget for February. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Royal Furniture Company Direct Materials Purchases Budget For the Month Ending February 28
	Direct Materials
		Fabric (sq. yds.)		Wood (linear ft.)		Filler (cu. ft.)		Springs (units)	Total
Required units for production:
King
Prince
Desired inventory, February 28
Total
Estimated inventory, February 1
Total units to be purchased
Unit price		$		$		$		$
Total direct materials to be purchased		$		$		$		$	$

4. Prepare a direct labor cost budget for February.

Royal Furniture Company Direct Labor Cost Budget For the Month Ending February 28
			Framing Department		Cutting Department		Upholstery Department	Total
Hours required for production:
	King
	Prince
	Total
Hourly rate			$		$		$
Total direct labor cost			$		$		$	$

Answer 1

ANSWER

(1) Sales Budget:

	Expected Sales budget for the month of February
	Product & Area		Unit sale volume	Unit Selling price ($)	Total sales ($)
(A)	King Chair
	Northen Domestic		610	780	475800
	Southern Domestic		340	780	265200
	International		360	850	306000
	Total revenue (King Chairs)				1,047,000
(B)	Prince Chair
	Northen Domestic		750	550	412500
	Southern Domestic		440	550	242000
	International		290	600	174000
	Total revenue (Prince Chairs)				828,500
	Total Revenue from Sales.		(A+B)		1,875,500

(2) Production Budget:

	Production Budget for the month February
					Units
					King	Prince
a)	Expected units to be sold				1310	1480
b)	Add: Desired Inventory as on Feb.28, 2016				80	35
c)	Total quantity	(a+b)			1390	1515
d)	Less: Estimated Inventory as on Feb. 01, 2016				90	25
e)	Total units to be produced		(C less d)		1,300	1,490

(3) Direct material Purchase Budget:  

Direct Material Purchase Budget for month of February
				Direct Material
					Fabric (Sq. yds)	Wood (linear ft )	Fillers (Cu. Ft.)	Springs (units)	Total ($)
1	Required units for production
2	King (1300 units chairs)		Material required per unit of chair		6	38	4.2	16
3	Direct material for 1300 King Chairs)			row 2 x 1300)	7800	49400	5460	20800
5	Prince (1490 units)				4	26	3.4	12
6	Direct material for 1490 Prince Chairs)				5960	38740	5066	17880
7	Plus Descried inventory as on Feb. 28, 2016			(row 6 x 1490)	390	650	300	540
a	Total of (row 3+6+7)				14150	88790	10826	39220
b	Less: Estimated inventory as on Feb. 01, 2016				420	580	250	660
c	Total units to be purchased		(a-b)		13730	88210	10576	38560
d	Unit price ($)				12	7	3	4.5
e	Total value ($) of direct material to be purchased (c x d)				164,760	617,470	31728	173,520	987,478

(4) Direct labor Cost Budget

	Direct labor cost budget				Departments
					Framing	Cutting	Upholstery	Total ($)
1	Hours required for production
2	King (1300 units chairs)		Direct labor hours required per unit of chair		1.2	0.5	0.8
3	Direct labor hrs for 1300 King Chairs			row 2 x 1300)	1560	650	1040
4	Prince (1490 units)		Direct labor hours required per unit of chair		1	0.4	0.6
5	Direct labor hrs for 1490 Prince Chairs) (row 4 x 1490)				1490	596	894
6	Total hours to be employed		(row 3+5)		3050	1246	1934
7	Direct labor rate per hour ($)				12	14	15
8	Value($) for total direct labor hours			( row 6 x 7)	36,600.00	17,444.00	29,010.00	83,054.00

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