Problem 5-31 - Part C

Strum Enterprises is a boutique guitar manufacturer. The company produces both acoustic and electric guitars for rising and established professional musicians. Claire Strum, the companys sales manager, prepared the following sales forecast for 2015. The forecasted sales prices include a 5 percent increase in the acoustic guitar price and a 10 percent increase in the electric guitar price, to cover anticipated increases in raw materials prices.

On December 31, 2014, Strum had 60 acoustic guitars in stockfewer than the desired inventory level of 80 guitars, based on the following quarters sales. The company has budgeted for sales of 460 acoustic guitars in the first quarter of 2016. Strum wants to maintain an ending inventory equal to 20 percent of the following quarters sales. Prepare the 2015 production budget for acoustic guitars.

(C) Each acoustic guitar requires a maple neck blank, which Strum purchases for $60. On December 31, 2014, Strum had 400 neck blanks in inventory. Spoilage during the production process results in a standard quantity of 1.2 necks per acoustic guitar. Because of recent delivery problems, Strum wants to maintain an ending inventory equal to 50 percent of the following quarters production needs. Since the supplier has assured Strum that the delivery issues will be resolved by the end of December, Strum wants only 330 neck blanks in inventory on December 31, 2015. Prepare the purchases budget for neck blanks for 2015.

These categories are to be used for problem C

Acoustic guitar sales Electric guitar sales Sales price $1,450 $2,600 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 400 510 370 680 150 90 200 300