CHAPTER 22

Using Excel to Make Decisions at Current Designs

Diane Buswell is preparing the 2022 budget for one of Current Designs rotomolded kayaks. Extensive meetings with members of the sales department and executive team have resulted in the following unit sales projections for 2022 and preliminary sales projections for 2023.

2022:Quarter 1 1,000 kayaks

Quarter 2 1,500 kayaks

Quarter 3 750 kayaks

Quarter 4 750 kayaks

2023:Quarter 1 1,100 kayaks

Quarter 2 1,500 kayaks

Current Designs policy is to have finished goods ending inventory in a quarter equal to 20% of the next quarters anticipated sales. Ending inventory of finished goods at December 31, 2021, will be 200 rotomolded kayaks.

Production of each kayak requires 54 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). Company policy is that the ending inventory of polyethylene powder should be 25% of the amount needed for production in the next quarter. Assume that the ending inventory of polyethylene powder on December 31, 2021, is 19,400 pounds. The finishing kits can be assembled as they are needed. As a result, Current Designs does not maintain a significant inventory of the finishing kits.

The polyethylene powder used in these kayaks costs $1.50 per pound, and the finishing kits cost $170 each. Production of a single kayak requires 2 hours of time by more experienced, type I employees and 3 hours of finishing time by type II employees. The type I employees are paid $15 per hour, and the type II employees are paid $12 per hour.

Selling and administrative expenses for this line are expected to be $45 per unit sold plus $7,500 per quarter. Manufacturing overhead is assigned at 150% of labor costs. The cost and production data in tabular form are presented here.

Desired ending inventory of polyethylene powder25%of next month's production

Desired ending inventory of finished units20%of next month's unit sales

Estimated inventories

Finished goods inventory at Dec. 31, 2021 200 kayaks

Polyethylene powder at Dec. 31, 2021 19,400 pounds

Polyethylene powder at Dec. 31, 2022 15,930 pounds

Production requirements

Polyethylene powder 54 pounds

Finishing kit 1 kit

Type I employees labor time 2 hours

Type II employees labor time 3 hours

Manufacturing overhead150%of direct labor costs

Cost of polyethylene powder $1.50 per pound

Cost of finishing kits 170.00 per kit

Labor rate of type I employees 15.00 per hour

Labor rate of type II employees 12.00 per hour

Selling and administrative expenses 45.00 per unit sold

Selling and administrative expenses 7,500 per quarter

Instructions

Prepare the production budget, direct materials budget, direct labor budget, manufacturing overhead budget, and selling and administrative budget for this product line by quarter and in total for 2022.

What-if Question

Perform what-if analysis to answer the following:

Suppose the sales in units for the third quarter are now estimated to be 1,200 units. Adjust the budgets to reflect these changes.

Follow the step-by-step directions in the accompanying tutorial to prepare selected budgets for Current Designs.

CURRENT DESIGNS

Production Budget

For the Year Ending December 31, 2022

Quarter 1Quarter 2Quarter 3Quarter 4Total

Expected unit sales

Add: desired ending finished goods units

Total required units

Less: beginning finished goods units

Required production units

CURRENT DESIGNS

Direct Materials Budget

For the Year Ending December 31, 2022

Quarter 1Quarter 2Quarter 3Quarter 4Total

Units to be produced

Pounds of polyethylene powder per unit

Total pounds needed for production

Add: desired ending inventory of powder

Total pounds of powder required

Less: beginning inventory of powder

Pounds of polyethylene powder to be purchased

Cost per pound

Cost of polyethylene powder to be purchased

Cost of required finishing kits

Total costs for direct materials

CURRENT DESIGNS

Direct Labor Budget

For the Year Ending December 31, 2022

Quarter 1Quarter 2Quarter 3Quarter 4Total

Units to be produced

Number of hours of more skilled labor/unit

Total number of hours of more skilled labor

Hourly rate for more skilled labor

Total cost of more skilled labor

Units to be produced

Number of hours of less skilled labor/unit

Total number of hours of less skilled labor

Hourly rate for less skilled labor

Total cost of less skilled labor

Total cost for direct labor

CURRENT DESIGNS

Manufacturing Overhead Budget

For the Year Ending December 31, 2022

Quarter 1Quarter 2Quarter 3Quarter 4Total

Total costs for direct labor

Manufacturing overhead rate per direct labor dollar

Manufacturing overhead costs

CURRENT DESIGNS

Selling and Administrative Budget

For the Year Ending December 31, 2022

Quarter 1Quarter 2Quarter 3Quarter 4Total

Expected unit sales

Variable selling and administrative costs

Fixed selling and administrative costs

Total selling and administrative costs