Scholastic Furniture, Inc. manufactures a variety of desks, chairs, tables, and shelf units that are sold to public school systems throughout the Midwest. The controller of the company’s Desk Division is currently preparing a budget for the second quarter of the year. The following sales forecast has been made by the division’s sales manager.

April 10,000 desk-and-chair sets
May 12,000 desk-and-chair sets
June 15,000 desk-and-chair sets

Each desk-and-chair set requires 10 board feet of pine planks and 1.5 hours of direct labor. Each set sells for $50. Pine planks cost $.50 per board foot, and the division ends each month with enough wood to cover 10 percent of the next month's production requirements. The division incurs a cost of $20 per hour for direct-labor wages and fringe benefits. The division ends each month with enough finished-goods inventory to cover 20 percent of the next month's sales.

Required
Complete the following budget schedules.
1. Sales budget.
2. Production budget (in sets).
3. Raw-material purchases
4. Direct-labor budget.

1. Sales budget.

April: $ 500,000

May: $ 600,000

June: $ 750,000

2. Production budget (in sets).

April: 12,400 u.

May: 12,600 u.

June: 12,000 u.

3. Raw-material purchases

April: $68,300

May: $62,700

June: $54,000

4. Direct-labor budget.

April: $372,000

May: $378,000

June: $360,000

Explanation:

1) Sales buget

The sales forecast is:

-April: 10,000 desk-and-chair sets

-May: 12,000 desk-and-chair sets

-June: 15,000 desk-and-chair sets

Each set sells for $50.

Then, the sales budget is:

April: 10,000 u. x 50 $/u = $ 500,000

May: 12,000 u. x 50 $/u = $ 600,000

June: 15,000 u. x 50 $/u = $ 750,000

2) Production budget

We have to convert the sales forecast, and assured that there is enough final inventory to cover 20% of the next month's sales.

April: 10,000 +0.2*12,000 = 10,000 + 2,400 = 12,400 u.

May: 0.8*12,000 + 0.2*15,000 = 9,600 + 3,000 = 12,600 u.

June: 0.8*15,000 = 12,000 u.

NOTE:

For April, we know we have to manufacture the 20% needed for May.

In May, the 20% manufactured in April is already done (so we need to produce only 80% of May's demand), but we have to produce a surplus to cover June's 20% demand.

For June there is no extra production, as we don't have a forceast for July.

3) Raw-material purchases

- Each desk and chair requires 10 boards feet

- Each board cost $0.50.

- The final inventory of each month has to cover 10% of the next month production requirements.

Boards budget (board per unit * units required* cost of the board):

April: 10*(12,400+0.10*12,600)*$0.50 = 136,600 boards feet * $0.50 = $68,300

May: 10*(0.90*12,600+0.10*12,000)*$0.50 = 125,400*$0.50 = $62,700

June: 10*(0.90*12,000)*$50 = 108,000*$0.50= $54,000

Direct labor budget

- Each desk and chair requires 1.5 hours of direct labor.

- The cost is $20 per hour.

April: 12,400u. * 1.5 h/u * $20/h = $372,000

May: 12,600u. * 1.5 h/u * $20/h = $378,000

June: 12,000u. * 1.5 h/u * $20/h = $360,000

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