duction Budget budget is prepared after the sales budget. The production budget lists r units that must be produced to satisty sales needs and to provide for the needs can be determined as LEARNING OBJECTIVE 7-3 Prepare a production budget g finished goods inventory. Production Mina Master Budget Case: MKD Ltd MKD Ltd. is a company that manufactures and sells a single product, which they call a Sera. For planning and control purposes, they utilize a monthly master budget, which is usually developed at least six months in advance of the budget year. Their fiscal year end is December 31 During the summer of 2007, Chris Leigh, the MKD controller, spent considerable time with Pat Frazer, the Manager of Marketing, putting together a sales forecast for the next budget year (January to December, 2008). Unfortunately, their collaboration worked so well they eloped to Las Vegas, were married by an Elvis impersonator, and settled down somewhere in the desert. Prior to their departure they e-mailed letters of resignation and a cryptic sales forecast to the President of MKD Their sales forecast consisted of these few lines .For the year ended December 31, 2007: 475,000 units at $10.00 each* .For the year ended December 31, 2008: 500,000 units at $10.00 each For the year ended December 31, 2009: 500,000 units at $10.00 each Expected sales for the year ended December 31, 2007 are based on actual sales to date and budgeted sales for the duration of the year MKD President felt certain that the marriage wouldn't last, and expected Chris would be back any day. But the end of the year is quickly approaching, and there is still no word from the desert. The President, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the coming fiscal year. Your conversations with the president and your investigations of the company's records have revealed the following information: Peak months for sales correspond with gift-giving holidays. History shows that January, March, May and June are the slowest months with only 1% of sales for each month. Sales pick up over the summer with July, August and September each contributing 2% to the total. Valentines Day in February boosts sales to 5%, and Easter in April accounts for 10%. As Christmas shopping picks up momentum winter sales start at 15% in October, move to 20% in November and then peak at 40% in December. This pattern of sales is not expected to change in the next two years. 1. cr From previous experience, management has determined that an ending inventory equal to 25% of the next month's sales is required to fit the buyer's demands 2. 3. Because sales are seasonal, MKD must rent an additional storage facility from September to December to house the additional inventory on hand. The only related cost is a flat $20,000 per month, payable at the beginning of the month duction Budget budget is prepared after the sales budget. The production budget lists r units that must be produced to satisty sales needs and to provide for the needs can be determined as LEARNING OBJECTIVE 7-3 Prepare a production budget g finished goods inventory. Production Mina Master Budget Case: MKD Ltd MKD Ltd. is a company that manufactures and sells a single product, which they call a Sera. For planning and control purposes, they utilize a monthly master budget, which is usually developed at least six months in advance of the budget year. Their fiscal year end is December 31 During the summer of 2007, Chris Leigh, the MKD controller, spent considerable time with Pat Frazer, the Manager of Marketing, putting together a sales forecast for the next budget year (January to December, 2008). Unfortunately, their collaboration worked so well they eloped to Las Vegas, were married by an Elvis impersonator, and settled down somewhere in the desert. Prior to their departure they e-mailed letters of resignation and a cryptic sales forecast to the President of MKD Their sales forecast consisted of these few lines .For the year ended December 31, 2007: 475,000 units at $10.00 each* .For the year ended December 31, 2008: 500,000 units at $10.00 each For the year ended December 31, 2009: 500,000 units at $10.00 each Expected sales for the year ended December 31, 2007 are based on actual sales to date and budgeted sales for the duration of the year MKD President felt certain that the marriage wouldn't last, and expected Chris would be back any day. But the end of the year is quickly approaching, and there is still no word from the desert. The President, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the coming fiscal year. Your conversations with the president and your investigations of the company's records have revealed the following information: Peak months for sales correspond with gift-giving holidays. History shows that January, March, May and June are the slowest months with only 1% of sales for each month. Sales pick up over the summer with July, August and September each contributing 2% to the total. Valentines Day in February boosts sales to 5%, and Easter in April accounts for 10%. As Christmas shopping picks up momentum winter sales start at 15% in October, move to 20% in November and then peak at 40% in December. This pattern of sales is not expected to change in the next two years. 1. cr From previous experience, management has determined that an ending inventory equal to 25% of the next month's sales is required to fit the buyer's demands 2. 3. Because sales are seasonal, MKD must rent an additional storage facility from September to December to house the additional inventory on hand. The only related cost is a flat $20,000 per month, payable at the beginning of the month