MINNESOTA CHAIRS, INC.$-$ OPERATING BUDGET

Minnesota Chairs Inc., produces chairs. Unit sales last year, ending December $31,$ were:

$1$st Quarter $6,000$

$2$nd Quarter $10,000$

$3$rd Quarter $12,000$

$4$th Quarter $8,000$

$$ Unit sales are expected to increase $30\%$ this coming year over the same quarter last year.

$$ Average sales price per chair will remain at $$300.$

$$ Assume finished goods inventory is maintained at a level equal to $10$ percent of the next quarter$$s sales.

$$ Finished goods inventory at the end of the fourth quarter budget period is estimated to be $1,900$ units.

$1.$ Prepare a sales budget, using a format similar to Table $9\mathrm{.}1.($Hint: be sure to increase last year$$s unit sales by $30$ percent.$)$

$2.$ Prepare a production budget, using a format similar to Figure $9\mathrm{.}3.$

NOW ASSUME that the company expects to produce $8,320$ units in Q$1,13,260$ units in Q$2,15,080$ units in Q$3,$ and $11,260$ units in Q$4.$

Manufacturing standards for one chair are $8$ yards of material $($wood$),$ at a cost of $$4$ per yard.

Management prefers to maintain ending raw materials inventory equal to $15\%$ of next quarter$$s materials needed in production. Raw materials inventory at the end of Q$4$ budget period is estimated to be $14,000$ yards.

With regards to direct labor, each unit of product requires $3$ labor hours at a cost of $$16$ per hour.

$3.$ Prepare a direct materials purchases budget for the company, using a format similar to Figure $9\mathrm{.}4.$

$4.$ Prepare a direct labor budget for the company, using a format similar to Table $9\mathrm{.}2.$

NOW ASSUME the same budgeted production as above $(8,320$ units in Q$1,13,260$ units in Q$2,15,080$ units in Q$3,$ and $11,260$ units in Q$4).$

$5.$ Variable overhead is budgeted at $$7\mathrm{.}10$ per unit as follows: Indirect materials, $ $\mathrm{.}20/$unit; Indirect labor, $ $4\mathrm{.}20/$unit; Other, $ $2\mathrm{.}70/$unit$.$

Fixed overhead is planned to consist salaries, rent & depreciation of $$100,000,$ $$30,000$ and $$44,908$ respectively per quarter.

Prepare a manufacturing overhead budget for the company, using a format similar to Table $9\mathrm{.}3.$

NOW ASSUME that variable selling expenses amount to $$10$ per unit sold. Fixed selling expenses are budgeted at $$100,000$ per quarter. Administrative expenses are all fixed and are budgeted at $$25,000$ per quarter

$6.$ Prepare a Selling & Administrative Budget, using a format similar to Table $9\mathrm{.}4$

EXTRA QUESTIONS:

$7.$ In the overhead budget, why do you think we subtracted depreciation?

$8.$ According to Generally Accepted Accounting Principles, what is the $$unit cost$?$

$9.$ ASSUME that the company$$s budgeted sales for the year is $47,920$ units. What is the budgeted $$Cost of Goods Sold$$ for the year?

$10.$ What is the $$gross margin$$ for the year?

$11.$ NOW ASSUME that the budgeted selling expenses for the year were $$879,200$ and budgeted administrative expenses were $$100,000.$ What is the $$operating income$$ for the year?

$12.$ Why did we use the term $$expenses$$ in #$11$ and NOT $$costs$.$