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3. Refer to r Refer to requirement 2. How could the reduction in material and labor costs be accomplished there any problems with this plan? 6-32 Revenue and production budgets. (CPA, adapted) The Sabat Corporation manufactures and sells two products: Thingone and Thingtwo. In July 2013, Sabat’s budget department gathered the following data to prepare budgets for 2014 2014 Projected Sales Product Units Price Thingone 62,000 $172 Thingtwo 46,000 S264 2014 Inventories in Units Expected Target January 1, 2014 December 31, 2014 Product Thingone Thingtwo 21,000 3,000 26,000 14,000 The following direct materials are used in the two products: Amount Used per Unit Thingone Thingtwo Unit pound pound each Direct Material
Expert Answer
- Sabat Corporation
Revenues Budget for 2014
Units Price Total
Thing one 62,000 $172 $10,664,000
Thing two 46,000 264 12,144,000
Budgeted revenues $22,808,000
2) The CEO would want to probe if the revenue budget is sufficiently stretched. Is the revenue growing faster than the market? Should the company increase marketing and advertising spending to grow sales? Would increasing the sales force or giving salespersons stronger incentives result in higher sales?
3)
Sabat Corporation
Production Budget (in units) for 2014
Thing one Thing two
Budgeted sales in units 62,000 46,000
Add target finished goods inventories,
December 31, 2014 26,000 14,000
Total requirements 88,000 60,000
Deduct finished goods inventories,
January 1, 2014 21,000 13,000
Units to be produced 67,000 47,000
4)
Sabat Corporation
Direct Materials Purchases Budget (in quantities) for 2014
Direct Materials
A B C Direct materials to be used in production
• Thingone (budgeted production of 67,000units
times 5 lbs. of A, 3 lbs. of B) 335,000 201,000 —
• Thingtwo (budgeted production of 47,000units times 6 lbs. of A, 4 lbs. of B, 2 lb. of C)
282000 188,000 94,000
Total 617,000 389,000 94,000
Add target ending inventories, December 31, 2014 40,000 35,000 12,000 Total requirements in units 657,000 424,000 106,000
Deduct beginning inventories, January 1, 2012 37,000 32,000 10,000 Direct materials to be purchased (units) 620,000 392,000 96,000
5)
Sabat Corporation
Direct Materials Purchases Budget (in dollars) for 2014
Budgeted Expected
Purchases Purchase
(Units) Price per unit Total Direct material A 620,000 $11 $6,820,000 Direct material B 392,000 6 2,352,000 Direct material C 96,000 5 480,000 Budgeted purchases $9,652,000
6)
Sabat Corporation
Direct Manufacturing Labor Budget (in dollars) for 2014
Direct
Budgeted Manufacturing Rate
Production Labor-Hours Total per
(Units) per Unit Hours Hour Total Thingone 67,000 3 201,000 $11 $2,211,000
Thingtwo 47,000 4 188,000 14 2,632,000
Total $4,843,000
7)
Sabat Corporation Budgeted Finished Goods Inventory
at December 31, 2014
Thingone:
Direct materials costs:
A, 5 pounds × $11 $55
B, 3 pounds × $6 18 $ 73
Direct manufacturing labor costs,
3 hours × $11 33
Manufacturing overhead costs at $19 per direct
manufacturing labor-hour (3 hours × $19) 57
Budgeted manufacturing costs per unit $163
Finished goods inventory of Thingone $163 × 26,000 units $4,238,000
Thingtwo:
Direct materials costs:
A, 6 pounds × $11 $66
B, 4 pounds × $6 24
C, 2 each × $5 10 $100
Direct manufacturing labor costs,4 hours × $14 56
Manufacturing overhead costs at $19 per direct
manufacturing labor-hour (4 hours × $19) 76
Budgeted manufacturing costs per unit $232
Finished goods inventory of Thingtwo
$232 × 14,000 units 3,248,000 Budgeted finished goods inventory, December 31, 2014 $7,486,000
8)
The CEO would want to ask the production manager why the target ending inventories have increased. Could production be more closely tailored to demand? Could the efficiency and productivity of direct materials and direct manufacturing labor be increased? Could direct materials inventory be reduced?
