Problem #6: Operating Budgets

Cathys Cookies produces cookies for resale at local grocery stores. The company is currently in the process of establishing a master budget on a quarterly basis for this coming fiscal year, which ends December 31. Prior year quarterly sales were as follows (1 unit = 1 batch):

First quarter: Second quarter: Third quarter:

Fourth quarter:

8,000 units 9,600 units 12,000 units 10,400 units

Unit sales are expected to increase 20%, and each unit is expected to sell for $5. Management prefers to maintain ending finished goods inventory equal to 15% of next quarter's sales. Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 2,000 units.

Required:

(1) (2) (3)

Prepare a sales budget for Cathys Cookies. Prepare a production budget for Cathys Cookies.

What can you interpret about Cathys Cookies Sales Budget? Trends?