Lee Inc. has gathered the following budgeting information for next year and has asked you to prepare their master budget.

a$.$ Sales for the final quarter of the prior year total $500$ units. Expected sales $($in units$)$ for the current year are: $450($Quarter $1),300($Quarter $2),400($Quarter $3),$ and $400($Quarter $4).$ Sales for the first quarter of the following year total $600$ units. The selling price is $$630$ per unit in the first three quarters of the year, and $$660$ per unit in the final quarter.

b$.$ Company policy calls for a given quarter's ending finished goods inventory to equal $50\%$ of the next quarter's expected unit sales. The finished goods inventory at the end of the prior year is $225$ units, which complies with the policy. The product's manufacturing cost is $$199$ per unit, including per unit costs of $$120$ for materials $(8$ lbs $.$ at $$15$ per lb $.),$ $$54$ for direct labor $(3$ hours $$ $$18$ direct labor rate per hour$),$ $$21$ for variable overhead, and $$4$ for fixed overhead. Annual fixed overhead consists, incurred evenly throughout the year, consist of depreciation on production equipment, $$2,600$; factory utilities, $$3,300,$ and other factory overhead of $$600.$

c$.$ Company policy also calls for a given quarter's ending raw materials inventory to equal $40\%$ of next quarter's expected materials needed for production. The prior year$-$end inventory is $1,200$ Ibs of materials, which complies with the policy. The company expects to have $1,920lbs.$ of materials in inventory at year$-$end. The company has no work in process inventory at the end of any quarter.

d$.$ Sales representatives' commissions are $18\%$ of sales and are paid in the quarter of the sales. The sales manager's quarterly salary will be $$35,000$ in the first three quarters of the year, and $$37,000$ in the final quarter.

e$.$ Quarterly general and administrative expenses include $$15,000$ administrative salaries, rent expense of $$9,000$ per quarter, insurance expense of $$7,000$ per quarter, straightline depreciation of $$7,000$ per quarter, and $1\%$ monthly interest on the $$250,000$ long$-$term note payable $(12\%$ annually$).$

f$.$ Income taxes will be assessed at $35\%,$ and are paid in the quarter incurred.

Chapter $20$ I

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$\backslash$table$[[$Sales Budget,$\backslash$table$[[$Production$],[$Budget$]],\backslash$table$[[$Direct Mtls$],[$Budget$]],\backslash$table$[[$Direct Lbr$],[$Budget$]],\backslash$table$[[$Factory OH$],[$Budget$]],\backslash$table$[[$Selling Exp$],[$Budget$]],\backslash$table$[[$Admin Exp$],[$Budget$]],\backslash$table$[[$Cost of$],[$Goods Sold$]],\backslash$table$[[$Income$],[$Statement$]]]]$

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Requirement:

Prepare the production budget for Lee Inc.. Company policy calls for a given quarter's ending finished goods inventory to equal $50\%$ of the next quarter's expected unit sales. The finished goods inventory at the end of the prior year is $225$ units, which complies with the policy. Expected sales $($in units$)$ for the current year are: $450($Quarter $1),300($Quarter $2),400($Quarter $3),$ and $400($Quarter $4).$ Sales for the first quarter of the following year total $600$ units.

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