In this assessment, you will perform two tasks, while exploring the concepts of budgetary planning and control. In Task 1, you will prepare a sales budget and in Task 2, you will prepare a production budget and material purchases budget. Task 1: Sales Budget Locksafe Company manufactures burglar-resistant commercial door locks. Recently, the company began selling locks on the Web, and the company expects sales to increase dramatically compared to the prior year. For the past year, unit sales were as follows: First Quarter 23,000 Second Quarter 28,000 Third Quarter 27,000 Fourth Quarter 32,000 Assume that sales for each quarter in the next year will be 25 percent higher than they were in the previous year and the selling price per lock is $15. Based on this information prepare a sales budget by quarter for the next year.
Task 2: Combined Production and Purchases Budgets Fenzel Slide Oil produces a lubricant, SlickTone, which is used on trombone slides. Information about the budget for the next year is as follows: The company expects to sell 6,000 bottles of SlickTone in the first quarter, 7,000 in the second quarter, 9,000 in the third quarter, and 5,000 in the fourth quarter. A bottle of SlickTone requires 4 ounces of Chemical A and 2 ounces of Chemical B. For the first, second, and third quarters of the next year, the desired ending inventory of finished goods is equal to 10 percent of next quarter’s sales, whereas the desired ending inventory for material is 20 percent of next quarter’s production requirements. AC2620: Module 4 Budgeting and Cost Variance Analysis Exercise 4.2 Budgetary Planning and Control 2 There are 600 bottles of SlickTone, 4,000 ounces of Chemical A, and 2,400 ounces of Chemical B on hand at the beginning of the first quarter. At the end of the fourth quarter, the company must have 1,000 bottles of SlickTone, 8,000 ounces of Chemical A, and 4,000 ounces of Chemical B to meet its needs in the first quarter of the year after the next. The cost of Chemical A is $1.20 per ounce, the cost of Chemical B is $2.15 per ounce, and the selling price of SlickTone is $12.00 per bottle. The cost of direct labor is $0.55 per bottle, and the cost of variable overhead is $0.75 per bottle. Fixed manufacturing overhead is $3,000 per quarter. Variable selling and administrative expense is 4 percent of sales and fixed selling and administrative expense is $3,000 per quarter. Based on this information, perform the following tasks: Prepare a production budget for each quarter of the next year. Prepare a material purchases budget for each quarter of the next year.